What is Fibonacci Retracement?

Horizontal levels at set percentages of a price swing — a map of where pullbacks commonly pause, not a magic formula.

Fibonacci retracement is a charting tool that divides a completed price swing into percentage levels — commonly 23.6%, 38.2%, 50%, 61.8% and 78.6% — drawn as horizontal lines between the swing low and the swing high. Traders use these levels to anticipate where a pullback might pause before the trend resumes: a shallow retracement to 38.2% suggests strong momentum, while a deep pull to 61.8% or 78.6% offers a cheaper entry if the level holds.

It is worth being honest about why the tool works to the extent it does: less because of any mystical mathematics and more because enough traders watch the same levels for reactions to appear there, and because the retracement logic overlaps with premium and discount — everything below the 50% level of a bullish swing is simply the discount half of the range. Used alone, Fibonacci levels invite curve-fitting, since some level is always nearby. Used as one confluence among several — a 61.8% level landing inside a fresh order block in discount — the tool adds genuine precision to pullback entries.