Fibonacci Retracement Complete Guide
Fibonacci Retracement
What is Fibonacci Retracement?
Fibonacci Retracement is a popular technical analysis tool based on the mathematical sequence discovered by Leonardo of Pisa in the 13th century. In trading, it is used to identify potential support and resistance levels where an asset's price might stall or reverse after a significant trend move. Unlike moving averages, these levels are static, allowing traders to anticipate price reactions in advance. The tool measures the distance between a major 'Swing High' and 'Swing Low.' It then divides the vertical distance by the key Fibonacci ratios: 23.6%, 38.2%, 61.8%, and 78.6%. Although not a Fibonacci ratio, the 50% level is almost always included due to its psychological importance in Dow Theory. To interpret it, traders look for price stabilization at these levels during a correction. For example, in an uptrend, a pullback to the 61.8% 'Golden Ratio' level is often viewed as a high-probability buying opportunity if bullish price action occurs. Practical usage involves seeking 'confluence'—where a Fibonacci level aligns with a horizontal support zone or a moving average. It is most effective on higher timeframes (daily or weekly) and should be used alongside momentum oscillators to confirm reversals.
Signal Types
61.8% Golden Ratio Support
Price pulls back to the 61.8% level and shows signs of stabilization, suggesting a high-probability entry point for trend continuation.
38.2% Shallow Retracement
In a strong trending market, price only retraces to the 38.2% level before resuming the trend, indicating high momentum.
78.6% Deep Retracement
A retracement to the 78.6% level is the last line of defense; a break beyond this often signals a full trend reversal.
Related Indicators
FAQ
Is the 50% level a true Fibonacci ratio?
No, the 50% level is not derived from the Fibonacci sequence. However, it is included because markets frequently retrace half of a major move before continuing.
Which timeframe is most effective for Fibonacci Retracement?
While it works on all timeframes, it is most reliable on Daily, Weekly, and Monthly charts where the 'Swing Highs' and 'Lows' represent significant market sentiment.
How do I know which Swing High and Low to use?
You should select the most prominent peak and trough of a clearly defined trend. If the price makes a new high, the tool should be redrawn to reflect the new range.
Parts of this page (FAQ, introductions) are AI-assisted. Core data and statistics are algorithmically computed. All pattern definitions are human-reviewed.
Disclaimer: This page is based on publicly available market data and algorithmically generated technical analysis. It does not constitute investment advice. Historical pattern statistics do not guarantee future performance. Invest at your own risk.
Data source: EODHD · © 2026 KlineVision AI