INSIGHTSFibonacci Retracement involves horizontal lines that indicate potential support or resistance levels at the key Fibonacci levels before the price continues in the original direction. Traders use this tool to forecast where asset prices might retreat before resuming a trend. The primary Fibonacci levels are 23.6%, 38.2%, 50%, 61.8%, and 100%, derived from the Fibonacci sequence, which is a series of numbers where each number is the sum of the two preceding ones.
For example, if a stock price increases from $100 to $200, traders would apply Fibonacci Retracement to find retracement levels by measuring the distance between these two points. If the stock retraces, Fibonacci levels can help traders identify where the price may bounce back. Related concepts include trend lines and technical indicators such as moving averages that can complement the Fibonacci tool for deeper analysis.