Fibonacci Retracement
Technical analysis levels derived from the Fibonacci sequence used to identify potential support and resistance.
What is Fibonacci Retracement?
Fibonacci retracement levels are horizontal price lines marking key percentages — 23.6%, 38.2%, 50%, 61.8%, and 78.6% — derived from ratios within the Fibonacci number sequence. Technical analysts draw these levels between a significant price high and low to identify potential areas where a retracing price may pause or reverse. The 61.8% level (the "golden ratio") is considered the most significant. Fibonacci levels are self-reinforcing to a degree: because many traders watch these levels, their collective reactions create the price behavior they anticipate. They are widely used in equity, forex, and cryptocurrency markets and work best when combined with other confirmation signals such as volume, candlestick patterns, or momentum indicators.
Example
A stock rises from $100 to $150 (a $50 move). Technical analysts draw Fibonacci retracement levels from the low to the high: 23.6% retracement = $138.20; 38.2% = $130.90; 50% = $125.00; 61.8% = $119.10. During the pullback, traders watch whether price holds at these levels. If the stock finds support at $125 (the 50% retracement) and resumes its uptrend, it confirms the level's significance.