What is Fibonacci Retracement?
Fibonacci retracement is a technical analysis tool using horizontal lines at key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%) to identify potential support and resistance levels during price pullbacks.
Fibonacci Retracement Explained
Based on the Fibonacci sequence, these ratios appear frequently in financial markets. The 61.8% level (the 'golden ratio') is particularly significant. Traders use these levels to identify entry points during pullbacks in a trend. While not magical, they work partly because so many traders watch them, creating self-fulfilling support and resistance.
Real-World Example
A stock rallies from $100 to $150. A trader draws Fibonacci retracement levels. The 38.2% retracement is at $130.90, and the 61.8% retracement is at $119.10. These levels may act as support during pullbacks.
Related Terms
Build Discipline Around Fibonacci Retracement
Understanding Fibonacci Retracement is one thing. Applying it consistently is where most traders fail. Ivern AI helps you build the daily habits to actually use what you know.
Start Building Discipline — Free