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.

It's important to note that Fibonacci retracement levels should not be used in isolation and should be used in conjunction with other technical analysis tools and indicators to confirm potential levels of support and resistance. Additionally, Fibonacci retracement levels may not always be accurate, and should be used in combination with other analysis techniques to increase the probability of success.

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