Definition
Fibonacci retracements are horizontal lines placed at specific percentages of a prior price move. After a market makes a notable swing — from a low to a high, or a high to a low — analysts mark the levels at 23.6%, 38.2%, 50%, 61.8%, and sometimes 78.6% of that swing. These lines flag the prices at which a pullback against the move might find support or resistance.
The ratios derive from the Fibonacci number sequence, in which each number is the sum of the two before it. The key figure of 61.8% is the so-called golden ratio. Technical analysts use these levels not because of any mechanical force but because many participants watch the same numbers, which can make them temporarily meaningful zones of interest.
Why it matters
How it works
To apply the tool, an analyst selects a significant swing and anchors the measurement between its start and end. The charting software then draws the retracement levels between those two points. When price retraces part of the original move, analysts watch how it behaves around each level — a pause, a bounce, or a clean break.
Fibonacci retracements are most useful in combination with other signals. A retracement level that coincides with a prior support zone, a trendline, or a chart pattern carries more weight than one standing alone. The levels also underpin harmonic patterns, which define entire formations through clusters of Fibonacci ratios.