Fibonacci retracement levels mark potential support or resistance points between a recent swing high and swing low, based on ratios derived from the Fibonacci sequence. Many traders watch these levels for possible reversal or continuation zones.
How the levels are calculated
Each level is a percentage of the distance between the swing high and swing low, measured back from the most recent extreme. The 61.8%, 50%, and 38.2% levels are the most commonly watched, with 61.8% often called the 'golden ratio' retracement.
How traders use these levels
In an uptrend, traders often watch these levels as potential support during a pullback before price resumes higher. In a downtrend, the same levels are watched as potential resistance during a bounce before price resumes lower.