Introduction to Fibonacci Retracement

The Fibonacci retracement tool is a popular technical analysis indicator used by traders to identify potential support and resistance levels based on key Fibonacci ratios. Derived from the Fibonacci sequence, these levels (23.6%, 38.2%, 50%, 61.8%, and 78.6%) help traders predict where price corrections may end before the trend resumes.

How Fibonacci Retracement Works

Fibonacci retracement levels are drawn between a swing high and a swing low (or vice versa) in a trending market. The tool then plots horizontal lines at key percentages, indicating where price pullbacks may find support or resistance.

Key Fibonacci Levels

23.6% - Shallow retracement, common in strong trends.
38.2% - Moderate retracement, often seen in healthy trends.
50%- - Not a true Fibonacci number but widely used as a psychological level.
61.8%- The "Golden Ratio," a critical level where trends often reverse or continue.
78.6% - Deep retracement; if broken, the trend may reverse.

How to Use Fibonacci Retracement in Trading

1. Identifying Retracement Levels in an Uptrend
- Step 1: Locate a clear swing low (A) and swing high (B).
- Step 2: Draw Fibonacci retracement from point A to B.
- Step 3: Watch for price reactions near 38.2%, 50%, or 61.8% for potential buying opportunities.

Example

If a stock rises from 100to100to200 and then pulls back, traders watch for support at:

2.Identifying Retracement Levels in an Uptrend
- $176.40 (23.6% retracement)
- $161.80 (38.2% retracement)
- $150 (50% retracement)
- $138.20 (61.8% retracement)

3.Identifying Retracement Levels in a Downtrend
- Step 1: Locate a swing high (A) and swing low (B).
- Step 2: Draw Fibonacci retracement from point A to B.
- Step 3: Watch for resistance near 38.2%, 50%, or 61.8% for potential selling opportunities

4.Combining Fibonacci with Other Indicators
- RSI or MACD: Confirms overbought/oversold conditions.
- Moving Averages: Helps validate trend strength.
- Candlestick Patterns: Engulfing, Doji, or Hammer patterns near Fib levels add confirmation.

Example of Fibonacci Retracement in Action

Let’s take Bitcoin (BTC/USD) as an example:

1.BTC rallies from 30,000to30,000to60,000.
2.Price retraces and finds support at the 61.8% level (~$42,360).
3.The uptrend resumes, confirming the Fibonacci level as a strong support zone.

Limitations of Fibonacci Retracement

Not always exact-Price may overshoot or undershoot levels.
Works best in trending markets-Less effective in choppy or sideways markets.
Subjective placement-Different traders may pick different swing highs/lows.

Conclusion

Fibonacci retracement is a powerful tool for identifying potential reversal zones in trending markets. By combining it with other indicators, traders can improve their entry and exit strategies.

Signals

OMNI

ETH

GOLD

BTC

Spot Buy MELANIA

Spot Buy – Gooncoin

Spot Buy – VVAIFU

Spot Buy – UNICORN