Fibonacci Retracement
Fibonacci retracements map pullback levels at 23.6%, 38.2%, 50% and 61.8% of a move, where trends often pause or reverse.
Fibonacci retracements mark 23.6%, 38.2%, 50% and 61.8% of a move, levels where pullbacks often pause or reverse. They work largely because enough traders watch the same numbers.
Fibonacci retracement is a technical tool that draws horizontal levels at 23.6%, 38.2%, 50% and 61.8% of a recent price move. The levels are derived from the Fibonacci sequence ratios and are used to identify where a pullback within a trend may find support or resistance. They work because enough traders watch the same levels to create self-reinforcing reactions, not because of any mathematical magic.
How It Works
- Draw from the start to the end of a swing
- Levels act as support in uptrends and resistance in downtrends
- The 61.8% level is the deepest retracement a trend normally allows
Trading Tips
Use retracements with trend context - they are pullback levels, not standalone signals
A retracement that breaks the 61.8% level usually means the trend is over
Confluence with support/resistance or a moving average beats a bare level
Fibonacci Retracement Example
Say EUR/USD rallies from 1.0800 to 1.1000, then pulls back to 1.0876, almost exactly the 61.8% retracement, and bounces 100 pips. Enough traders watched that level to make it real: self-fulfilling geometry.
How Traders Use Fibonacci Retracement
Draw fibs from clear swing to swing and trade only the 38.2 to 61.8 zone with confirmation. Random wicks are not swings. Confluence with structure beats the level alone, every time.
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