Fibonacci Retracement (FR)

Fibonacci Retracement is a technical used to identify potential levels of support and resistance in financial markets. It is based on the Fibonacci sequence, a series of numbers in which each number is the sum of the two preceding ones (e.g., 0, 1, 1, 2, 3, 5, 8, 13, 21, etc.).

The Fibonacci Retracement tool is applied to a price chart to identify key levels where the price might experience a retracement or correction within a larger trend. The tool consists of horizontal lines drawn at specific Fibonacci levels, which are calculated as percentages derived from the vertical distance of a price move.

Here's how Fibonacci Retracement is typically used:

• Identify the Swing High and Swing Low: Select a significant high point and a significant low point in the price chart. These points should represent a clear and measurable price move.
  
  
• Apply Fibonacci Levels: With the Swing High and Swing Low identified, the Fibonacci Retracement tool is used to draw horizontal lines at certain Fibonacci levels. The most commonly used levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
  
  
• Interpretation of Fibonacci Levels: These Fibonacci levels act as potential areas of support or resistance where the price may reverse or consolidate before continuing in the direction of the larger trend. Traders often watch for price reactions, such as bounces or consolidations, around these levels.
  
  
• Additional Levels: Some traders also use extended Fibonacci levels beyond the 100% level, such as 127.2% and 161.8%, to identify potential areas of strong support or resistance in the event of a significant price extension.
  
  

It's important to note that Fibonacci Retracement levels are not definitive price levels where a reversal is guaranteed to occur. They are used as guides to highlight areas of interest for traders, and other technical analysis tools and indicators should be used to confirm signals and provide additional context.

Fibonacci Retracement is based on the idea that markets often retrace a portion of a price move before resuming the larger trend. By using Fibonacci levels, traders attempt to anticipate potential turning points in the market and identify areas of opportunity for entering or exiting trades.

It's worth mentioning that Fibonacci Retracement is just one tool among many in a trader's toolkit. It should be used in conjunction with other analysis techniques, indicators, and market context for a comprehensive analysis. Additionally, traders may also use other Fibonacci tools, such as Fibonacci Extensions, to project potential price targets beyond the retracement levels.