Fibonacci retracement

Fibonacci retracement applies a sequence of numbers (0, 1, 1, 2, 3, 5, 8...) to identify key price levels. Traders draw horizontal lines at specific percentages (23.6%, 38.2%, 50%, 61.8%, 78.6%) between a high and a low point on a chart. These percentages, derived from the Fibonacci sequence, indicate where price might retrace before continuing its original trend. The 50% level is not a Fibonacci ratio but is commonly included due to observed market behavior.

For a retail trader, Fibonacci retracement acts as a tool to anticipate price reversals or continuations. Traders often use these levels to place limit orders for entry, set stop-losses, or define take-profit targets. For example, a trader might enter a long position at the 61.8% retracement level with a stop-loss below the 78.6% level. However, these levels are not guaranteed and should be used in conjunction with other analysis to confirm potential trade setups.