The Fibonacci retracement is a method of determining the potential resistance and support levels of a market’s price
It’s based on the idea that a price will retrace a predictable proportion of an original movement, after which it will continue to move in it’s original direction
Often a correction retraces a Fibonacci percentage of a preceding wave
The most common retracement areas are: 38.2%, 50%, and 61.8%
Fibonacci retracement act as a potential turning point in the market, and have grown increasingly popular in recent years
Our award-winning platform xStation has an intuitive and easy to use Fib retracement function
The Fibonacci retracement is a hugely popular technical analysis tool that helps determine potential support and resistance levels for traders. Fib retracements highlight corrective movements and may help you trade in the direction of the trend.
There are many methods of using the Fibonacci retracement but the focus in this article will be the comparison between impulses and corrections.
Some of the most important levels of support and resistance include the following percentage areas:
38.2% - 41.4%
61.8% - 70.7%
In this example, the market started a dynamic decline after which it gained in value, stopping twice at the 50% level of the decline and then retesting the 38.2% level. This is a great example where the market was not able to break significant resistance levels on three separate occasions.
In this example, the market also started with a decline but the gain in value was stronger in comparison with the previous example. On this occasion, the market found resistance on the 61.8% level of the decrease movement.
Here the market first gained in value, after which a corrective movement started to form. Before continuing its movement in the direction of the main trend the market found support first on the 38.2% retracement and later on the 41.4% retracement.
Want to learn more about Fibonacci Retracements?
There are many methods and strategies based on the Fibonacci retracement. To learn more about Fib retracements, you can read more or sign up to one of our free webinars.