Fibonacci Retracement

Fibonacci retracement is a powerful tool for identifying potential support and resistance levels. Let’s explore the key aspects:

  1. Fibonacci Sequence Basics:

    • Derived from the Fibonacci sequence, a series of numbers where each number is the sum of the previous two (e.g., 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, …).

    • These numbers have mathematical significance and appear in various natural phenomena.

  2. Fibonacci Retracement Levels:

    • Calculation: Take two extreme points on a price chart (usually a swing high and a swing low).

    • Divide the vertical distance by key Fibonacci ratios:

      • 23.6%, 38.2%, 50%, 61.8%, and 100%.

    • These ratios guide the retracement levels.

  3. Drawing Fibonacci Retracement:

    • Identify the swing high (highest point) and swing low (lowest point) on the chart.

    • Use your charting software’s Fibonacci retracement tool to draw the levels.

  4. Support and Resistance Significance:

    • 38.2% and 61.8% levels are particularly important.

    • These levels often act as strong areas of support and resistance.

Remember, Fibonacci retracement enhances technical analysis by pinpointing critical price levels!

Fibonacci Retracement: In the chart below, you can see that the price of the AUD/USD currency pair has retraced to the 23.6% Fibonacci level, which is a key level of support.

Last updated

Was this helpful?