Trading glossary
Fibonacci retracement is a technical analysis tool that maps potential support and resistance levels using ratios derived from the Fibonacci sequence.
Fibonacci retracement is a technical analysis tool that highlights price levels where an asset might pause, reverse, or continue after a move. Traders draw it by selecting a high and a low point on a chart, then the tool plots horizontal lines at set percentages between them. These lines are meant to flag zones of possible interest, not certainties about future direction.
The common retracement levels are 23.6 percent, 38.2 percent, 50 percent, 61.8 percent, and 78.6 percent. Most of these come from the Fibonacci number sequence, where each number is the sum of the two before it. The 61.8 percent level, sometimes called the golden ratio, receives particular attention, while 50 percent is included by convention rather than derived from the sequence itself.
Analysts watch whether price stalls or turns near a retracement line, often combining it with other signals such as trendlines, volume, or momentum before drawing conclusions. A retracement level that lines up with a prior support or resistance zone is generally considered more noteworthy. The tool describes probabilities and context, not guaranteed outcomes, and price frequently moves through levels without reacting.
Most ratios are derived from the Fibonacci sequence, where dividing certain numbers produces figures like 61.8 percent and 38.2 percent. The 50 percent level is added by common practice rather than calculated from the sequence.
No. Retracement levels mark zones where a reaction is possible, but price often passes straight through them. They are one input among many and offer no assurance of a turn or continuation.