Date  22.09.2023   |  Get in Touch

The Fibonacci retracement method is a technical analysis tool used to identify potential levels of support and resistance in a market trend. It is based on the idea that markets tend to retrace a predictable portion of a move, after which they may continue in the original direction or reverse.

The method uses a series of horizontal lines drawn at the key Fibonacci levels of 23.6%, 38.2%, 50%, 61.8%, and 100%. These levels are calculated by taking the high and low points of a trend and dividing the vertical distance by the key Fibonacci ratios. For example, the 38.2% level is calculated by dividing the distance between the high and low points by the ratio 0.382.

Traders use Fibonacci retracements to identify potential areas of support or resistance where price may stall or reverse. For example, if a stock is in an uptrend and pulls back to the 38.2% retracement level, it may find support and resume its uptrend. If, however, the stock falls below the 50% retracement level, it may signal a deeper pullback or a reversal of the trend.

## Trading with Fibonacci indicator – example

The Fibonacci retracement method involves using the Fibonacci ratios to identify potential levels of support or resistance in a market trend. The key Fibonacci ratios used in this method are 23.6%, 38.2%, 50%, 61.8%, and 100%. To calculate these levels, you need to follow these steps:

1. Identify the high and low points of the trend that you want to analyze.
2. Calculate the distance between the high and low points.
3. Multiply the distance by each of the Fibonacci ratios to get the retracement levels.

For example, let’s say that the high point of a trend is \$100 and the low point is \$50. The distance between these points is \$50.

To calculate the retracement levels using the Fibonacci ratios, you would follow these steps:

1. 23.6% retracement level: Multiply the distance by 0.236 and subtract the result from the high point.
• Calculation: \$100 – (\$50 x 0.236) = \$87.80
2. 38.2% retracement level: Multiply the distance by 0.382 and subtract the result from the high point.
• Calculation: \$100 – (\$50 x 0.382) = \$81.00
3. 50% retracement level: Multiply the distance by 0.5 and subtract the result from the high point.
• Calculation: \$100 – (\$50 x 0.5) = \$75.00
4. 61.8% retracement level: Multiply the distance by 0.618 and subtract the result from the high point.
• Calculation: \$100 – (\$50 x 0.618) = \$68.20
5. 100% retracement level: This level represents the high point of the trend.
• Calculation: \$100

These levels can be used as potential areas of support or resistance for the price of the asset being analyzed. However, it’s important to note that the Fibonacci retracement method is not a guarantee of future price movements and should be used in conjunction with other technical analysis tools and indicators.

It is important to note that Fibonacci retracements are not always accurate, and should be used in conjunction with other technical indicators and analysis. However, they can provide traders with a useful framework for identifying potential price levels to watch for in a trend 