Fibonacci Retracement

Fibonacci Retracement is a term used in technical analysis that refers to a series of possible key retracement support/resistance levels based on the number series identified by mathematician Leonardo Fibonacci in the thirteenth century.

Fibonacci Retracement

Fibonacci Retracement is a term used in technical analysis that refers to a series of possible key retracement support/resistance levels based on the number series identified by mathematician Leonardo Fibonacci in the thirteenth century. Fibonacci's sequence of numbers is not as important as the ratios between the numbers in the series. For reasons that are not understood, the Fibonacci ratios appear to play an important role in the stock market, just as they do in nature.

 


Fibonacci Retracement Calculation

The Fibonacci retracement levels are created by drawing a trendline between two extreme pivot points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.  The key Fibonacci ratio of 61.8% - also referred to as the golden ratio or the golden mean - is found by dividing one number in the series by the number that follows it.  For example: 8/13 = 0.6153, and 55/89 = 0.6179.

Fibonacci Retracement consists of seven trend lines drawn using the Fibonacci series and used to visualize support and resistance levels.

Fibonacci Retracement consists of seven trend lines drawn using the Fibonacci series and used to visualize support and resistance levels.



Fibonacci Retracement Interpretation

Fibonacci retracement is based on the idea that market or stock price will retrace a predictable portion of a move to a Fibonacci support level, after which it is expected to rebound and continue in the original direction. Technical analysts generally look for a confirming indicator before placing a trade at a Fibonacci retracement level.

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