Fibonacci Retracement

Technical Analysis

Fibonacci retracement uses horizontal levels derived from the Fibonacci sequence to identify likely areas where a pullback may find support or resistance.

Fibonacci Retracement — illustrative image

What is Fibonacci retracement?

Fibonacci retracement is a technical analysis tool that plots horizontal lines at key percentage levels between a chosen swing high and swing low, based on ratios derived from the Fibonacci number sequence (a series where each number is the sum of the two before it: 1, 1, 2, 3, 5, 8, 13, 21…). Dividing numbers in this sequence produces recurring ratios such as 61.8% and 38.2%, which traders use to mark potential support or resistance zones during a pullback.

The key levels

The most commonly used Fibonacci retracement levels are:

23.6%
38.2%
50% (not a true Fibonacci ratio, but conventionally included)
61.8% (often called the “golden ratio”)
78.6%

To draw them, a trader selects a significant swing low and swing high (or vice versa in a downtrend) and lets the charting tool plot the percentage levels in between.

Example

Suppose gold rallies from $2,200 to $2,400 and then begins to pull back. A trader would draw a Fibonacci retracement from the $2,200 low to the $2,400 high. The 50% level would sit at $2,300 and the 61.8% level at roughly $2,276. If the pullback stalls and reverses higher right around $2,276, Fibonacci traders would treat that as the pullback finding support at the 61.8% retracement level before the uptrend potentially resumes.

Why traders use it

The idea is that markets often retrace a predictable portion of a prior move before continuing in the original trend direction, and Fibonacci levels give traders specific, repeatable price zones to watch for potential entries, stop-loss placement, or profit-taking — rather than guessing where a pullback might end.

Why it matters

Fibonacci retracement is popular precisely because so many traders use it, which can become a self-reinforcing effect: if enough market participants watch the same level, it may act as support or resistance simply because of that shared attention. That said, it is not a guaranteed formula — price can blow through Fibonacci levels without reacting, so it should be combined with other confirmation (candlestick patterns, volume, or existing support/resistance) rather than used alone.

See also support, resistance, and technical analysis.