Horizontal price levels derived from Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) that traders use to identify potential support or resistance after a trending move.
Fibonacci retracements are drawn by identifying a significant swing high and swing low and plotting the key ratios between them. The 38.2% and 61.8% levels are considered the most reliable, with 61.8% - the 'golden ratio' - attracting the most institutional attention.
The underlying logic is that after a directional move, price tends to retrace a predictable fraction before the trend resumes. Traders use Fibonacci levels to plan limit-order entries in the direction of the primary trend, placing stops just beyond the next level.
Fibonacci levels gain significance when they coincide with other technical factors - prior support/resistance zones, moving averages, or round numbers - creating confluence that increases the probability of a reaction.
The 50% level is not a true Fibonacci ratio but is widely used because markets frequently pause at the midpoint of a prior move.
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