Fibonacci Retracement is a popular technical analysis tool used to identify potential support and resistance levels in the market, based on Fibonacci series ratios. These ratios help traders identify areas where the price may bounce back during a corrective move in the overall market trend.
Basic Fibonacci Retracement Ratio:
1.0.0% - Start of price movement.
2.23.6% - First correction level.
3.38.2% - Important correction level.
4.50.0% - (Not part of the Fibonacci sequence, but a key level that is often used.)
5.61.8% - Golden level of correction.
6.78.6% - Deep correction level.
7.100.0% - End of price movement (full return).
How to use Fibonacci correction:
1. Drawing the tool:
• Choose a clear top and bottom (either in an uptrend or downtrend).
•Draw Fibonacci retracement lines between the top and bottom using the drawing tool found in most technical analysis software.
2. Interpretation of levels:
•If the overall market trend is bullish: Retracement levels are used to identify potential support areas (where the price could bounce back).
•If the overall market trend is downward: retracement levels are used to identify potential resistance areas (where the price could fall).
3.Integration with other tools:
•Fibonacci levels can be combined with other technical indicators (such as moving averages or candlestick patterns) to obtain more powerful signals.
Top tips:
•38.2% and 61.8% are the most important correction levels that traders watch.
•Deep corrections (such as 78.6%) may indicate a potential trend reversal.
•It is important that signals are confirmed using other tools, such as trading volumes or trend lines.