Definition
A Fibonacci ratio is one of several proportions derived from the Fibonacci number sequence, in which each number is the sum of the previous two. The ratios most often used in technical analysis are roughly 23.6, 38.2, 50, 61.8, and 78.6 percent, with 61.8 percent — the so-called golden ratio — being the best known.
In charting, these ratios are applied to a prior price swing to mark levels where a pullback might end or where an extension might reach.
Why it matters
How it works
To use Fibonacci retracements, a trader picks a clear swing from low to high or high to low, then plots the ratio levels across that range. A correction may pause near the 38.2, 50, or 61.8 percent level before the original trend resumes. Extension ratios such as 161.8 percent project potential targets beyond the prior swing.
Because no level holds reliably on its own, practitioners treat Fibonacci ratios as a context tool. They carry more weight when a level coincides with other evidence, such as a confirmation signal, a trendline, or a measure-rule target.