Fibonacci Retracement

Definition

Fibonacci retracement levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) are horizontal lines that indicate potential support and resistance zones where price may pause or reverse during a pullback within a larger trend. Drawn from a significant swing high to swing low (or vice versa), these levels help traders identify high-probability entry points. The 61.8% level (golden ratio) is particularly significant and often acts as the last line of defense before a trend reversal. Best practice is to treat these as zones rather than exact prices, and combine them with other confirmation signals like moving averages, RSI divergence, candlestick patterns, or prior support/resistance levels. Common mistakes include drawing from minor swings instead of clear trend moves, trading every touch without confirmation, and placing stops exactly on Fibonacci lines where they can be easily hunted.