Fibonacci Retracement

AAA

DEFINITION of 'Fibonacci Retracement'

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

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Gartley Pattern

    In technical analysis, it is a complex price pattern based on ...
  2. Fibonacci Numbers/Lines

    Leonardo Fibonacci was an Italian mathematician born in the 12th ...
  3. Fibonacci Fan

    A charting technique consisting of three diagonal lines that ...
  4. Fibonacci Arc

    A charting technique consisting of three curved lines that are ...
  5. Tirone Levels

    A series of three sequentially higher horizontal lines used to ...
  6. Elliott Wave Theory

    Theory named after Ralph Nelson Elliott, who concluded that the ...
RELATED FAQS
  1. What is a common strategy traders implement when using the Zig Zag Indicator?

    The zig zag indicator follows the trend while reducing noise in a stock or the market. Traders can use it to assist in holding ... Read Full Answer >>
  2. How can Low Swings on securities be used to spot profitable trading opportunities?

    Swing lows in an overall bull market provide investors the opportunity to add to their equity holdings and make additional ... Read Full Answer >>
  3. How do I implement a forex strategy when spotting a Saucer Pattern?

    A forex trading strategy that seeks to profit from the trend change signaled by the appearance of a saucer pattern, also ... Read Full Answer >>
  4. Why is the Gann Fans important for traders and analysts?

    W.D. Ganns believed that the ideal timing for exiting a market position occurred whenever prices moved at a 45-degree angle ... Read Full Answer >>
  5. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  6. How will consumer packaged goods companies' stocks react to changes in oil prices?

    The stock prices of consumer packaged goods companies should react favorably to any significant decline in oil prices. Lower ... Read Full Answer >>
Related Articles
  1. Active Trading

    Fibonacci And The Golden Ratio

    Discover how this amazing ratio, revealed in countless proportions throughout nature, applies to the financial markets.
  2. Options & Futures

    Retracement Or Reversal: Know The Difference

    Learn to distinguish between a temporary price change and a long-term trend.
  3. Forex Education

    Moving Average Explosions

    Find out how you can profit from this short squeeze strategy.
  4. Active Trading Fundamentals

    The Psychology Of Support And Resistance Zones

    Emotion drives the market more than you might realize. Find out how psychology affects support and resistance zones.
  5. Technical Indicators

    Interpreting Support And Resistance Zones

    Use of support and resistance zones can be a key to successful trades. Learn how they work and how to use them.
  6. Forex Education

    Top 4 Fibonacci Retracement Mistakes To Avoid

    Using Fibonacci incorrectly can have disastrous consequences. Find out which common moves to avoid.
  7. Forex Education

    The New World Of Emerging Market Currencies

    Take advantage of foreign currency markets without stepping out of your house.
  8. Active Trading

    Tales From The Trenches: The Rising Wedge Breakdown

    Learn how to short this reversal pattern with a favorable risk/reward ratio.
  9. Active Trading

    Advanced Fibonacci Applications

    Extensions, clusters, channels and more! Discover new ways to put the "golden ratio" to work.
  10. Active Trading Fundamentals

    Find A Trend With The Partial Retrace

    Learn how to spot the pivot point from which a new movement will emerge.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center