Fibonacci retracements are one of the most widely used tools in technical analysis to identify potential levels of support and resistance in a financial market. This tool is based on the Fibonacci sequence, a mathematical series discovered by the Italian mathematician Leonardo Fibonacci, and its key ratio, the Golden Ratio (0.618 or 61.8%).

1. What is a Fibonacci Retracement?

A Fibonacci retracement is used to identify potential areas of reversal or pause in a trend. After a strong upward or downward move, prices tend to "retrace" part of that move before resuming their original direction. Fibonacci levels help identify how far the price may retrace before resuming its original trend.

2. How Do Fibonacci Levels Work?

The most used levels are:

  • 23.6% – slight retracement

  • 38.2% – moderate retracement

  • 50.0% – important psychological level (even if it is not technically a Fibonacci number)

  • 61.8% – the key level according to the golden ratio

  • 78.6% – deep retracement

These levels are plotted from the low to the high (or vice versa) of a significant move and provide possible bounce points.

3. How to Use Fibonacci in Trading?

  1. Spotting a Trend:

    • If the price is rising, we draw Fibonacci from low to high.

    • If the price is down, we draw Fibonacci from high to low.

  2. Waiting for Retracement:

    • The price could stop at one of the Fibonacci levels and resume the direction of the main trend.

  3. Confirmations with Other Tools:

    • Static supports and resistances

    • Japanese Candlestick Patterns

    • Indicators like RSI or MACD

4. Practical Example

Let's imagine that the price of Bitcoin has moved from $30,000 to $40,000. By plotting Fibonacci from 30,000 to 40,000, the key levels could be:

  • 38,2% → 36.180$

  • 50,0% → 35.000$

  • 61,8% → 33.820$

If the price drops and finds support around one of these levels (e.g. $35,000), it could be a sign that the uptrend is resuming.

5. Limitations of Fibonacci Retracements

❌ They are not always accurate: it is better to use them with other tools.
❌ They work best in markets with clear trends.
❌ They do not indicate the exact moment of reversal, but only potential support or resistance zones.

Conclusion

Fibonacci retracements are a great guide to spot areas of possible bounce, but they should always be used with other technical confirmations to make more confident decisions.