Fibonacci Retracement Guide

Fibonacci retracement is a powerful tool that helps you identify potential support and resistance levels. Many professional traders use this tool daily.

What Is Fibonacci Retracement?

Fibonacci retracement is based on the Fibonacci sequence, a mathematical series where each number is the sum of the two preceding ones. The key retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.

How To Use Fibonacci?

1. Draw from Swing Low to Swing High

In an uptrend, you draw the Fibonacci from the lowest to the highest point. The retracement levels act as potential support.

2. Draw from Swing High to Swing Low

In a downtrend, you draw the Fibonacci from high to low. The levels act as potential resistance.

3. Key Levels

The 61.8% level is the most important. This is often called the "golden ratio." Many traders wait for a reaction at this level.

Fibonacci Extensions

Besides retracement levels, you can also use Fibonacci extensions to set profit targets. The key extension levels are 127.2%, 161.8%, and 261.8%.

Tips

• Combine Fibonacci with price action patterns
• Watch for convergence of multiple Fibonacci levels
• Use Fibonacci on multiple timeframes

Conclusion

Fibonacci retracement is not a magic tool, but it is a powerful method to identify potential turning points. Use it together with other indicators for the best results.