The Fibonacci Retracement is the most common Fibonacci tool. It identifies potential retracement levels within a price trend. The key retracement levels are:23.6%38.2%50% (not a true Fibonacci ratio but widely used)61.8% (known as the "golden ratio" due to its relation to the golden mean)78.6%These levels are calculated by taking two extreme points on a chart (usually the highest and lowest points of a trend) and dividing the distance between them by Fibonacci ratios.
How is it Used?
Identify the Trend: First, spot a significant price movement (uptrend or downtrend).In an uptrend, connect the swing low to the swing high.In a downtrend, connect the swing high to the swing low.Apply the Tool: Most trading platforms (e.g., TradingView, MetaTrader) have a built-in Fibonacci tool. Select the tool, click the first point (low or high), and drag to the second point. The tool automatically plots the retracement levels.Analyze Levels:In an uptrend, Fibonacci levels indicate potential support where the price may bounce after a pullback.In a downtrend, they show potential resistance where the price may stall or reverse.
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