What is Fibonacci retracement? The term refers to a method used in technical analysis for determining resistance and support levels. It gets its name from the Fibonacci sequence of numbers, which provide price levels where markets tend to retrace. By studying these levels, you can use technical analysis to find areas in which to invest. Here’s a quick overview of the concept.
The Fibonacci retracement levels are horizontal lines that can be used as a guide to identify important support and resistance levels in the market. Each level is associated with a percentage, which tells you how much of the prior move price has retraced. The percentages are known as the Fibonacci levels 23, 6, 38, 50%, 61.8%, and 78.6%, although there is also a 50 percent level. The best way to interpret a Fibonacci retracement is to draw it between a significant high and a low point in a chart.
To understand what a Fibonacci retracement looks like, you need to understand its basic concept. The levels begin at a high price level and end at a low point. They’re automatically calculated from the high to low point. They act as potential reversal points. They’re not a guarantee that a price will reverse after reaching a Fib level. For that reason, you should use other technical indicators in conjunction with the Fibonacci retracement.