Fibonacci Retracement

Fibonacci Retracements have been recognized as useful technical analysis tools for determining support or resistance in a particular financial market because they are derived from the Fibonacci sequence, being a series of numbers with interesting properties in mathematics. The prediction of price behavior by this tool will be provided by reversal or continuations under trend conditions by a trader.

The key Fibonacci retracements are those of 23.6%, 38.2%, 50%, 61.8%, and 78.6%. They reveal the possible areas for price reversal or consolidation before the price continues its trend. The user draws the fib retracement tool across two significant price levels, say a high and a low, to create horizontal lines across these indicated retracement levels.

Example: In an uptrend, they have acting support levels for where prices might pull back to bounce up again. In a downtrend, they have acting resistance levels where prices may stall or reverse.

Fibonacci retracement will normally be used together with other indicators, such as the moving averages trend patterns or within an overall framework to substantiate signals and accuracy. It does not promise price behavior.

In this way, a trader can incorporate Fibonacci retracement into his strategies to better enter and exit an investment scenario, manage risks more efficiently, and navigate market movements with greater confidence.

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~ Nesaty