Introduction to Fibonacci Retracement
Fibonacci retracement is a technical analysis tool used to identify potential areas of support, resistance, reversal, or consolidation within an existing price trend. It provides guidance only and cannot guarantee that prices will move to specific levels.
Principles and common ratios
The Fibonacci sequence starts with 0 and 1 and thereafter each number equals the sum of the preceding two numbers. Retracement analysis often uses 23.6%、38.2%and 61.8%ratios, among which 61.8%corresponds to the ratio related to the golden ratio. Charting tools also often include the 50%retracement level, but it is not directly derived from the ratios of the Fibonacci sequence.
How to draw retracement levels
To use it, first identify the high and low points of a trend on the chart: for an upward trend, the tool is typically drawn from the low to the high, while for a downward trend, it is drawn from the high to the low. The tool then marks multiple horizontal lines to help observe support areas where a price retracement may temporarily slow a decline, or resistance areas where the price may encounter an obstacle.
Uses and Limitations
Traders can use these levels as a reference for potential reversal points and to help plan entry, stop-loss, and take-profit levels, but no single ratio is a definitive signal. In practice, Fibonacci retracement is often combined with moving averages, the Relative Strength Index, trend lines, or trading volume; even when multiple signals converge, this only indicates an increased possibility.
Original Tutorial
https://www.binance.com/zh-CN/academy/glossary/fibonacci-retracement
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