Fibonacci Retracement

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What is a 'Fibonacci Retracement'

A Fibonacci retracement is a term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going higher). The Fibonacci retracement is the potential retracement of a financial asset's original move in price. Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

Fibonacci Retracement

BREAKING DOWN 'Fibonacci Retracement'

Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses. The notion of retracement is used in many indicators such as Tirone levels, Gartley patterns, Elliott Wave theory and more. After a significant price movement up or down, the new support and resistance levels are often at or near these lines.

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RELATED FAQS
  1. What are some of the more common Fibonacci retracements?

    Examine the basic Fibonacci retracement levels, and learn how key Fibonacci levels are used by traders to identify potential ... Read Answer >>
  2. What are the most common strategies to place retracement levels?

    Find out how traders place Fibonacci retracement levels, and learn what it means when a price retracement seems to reverse ... Read Answer >>
  3. How can a swing trader use a Fibonacci retracement?

    Learn how swing traders can use Fibonacci retracements to identify areas of support and resistance, as well as entry and ... Read Answer >>
  4. How do I use Fibonacci Retracements to create a forex trading strategy?

    Learn how to use Fibonacci retracements as part of an overall forex trading strategy. Fibonacci levels are carefully watched ... Read Answer >>
  5. Why is the Fibonacci Retracement important for traders and analysts?

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  6. What are the alert zones in a Fibonacci retracement?

    Discover more about the Fibonacci number sequence, and specifically about the key Fibonacci retracement alert levels most ... Read Answer >>
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