Fibonacci Retracement

A Fibonacci retracement plots a set of horizontal lines between a chart's most recent swing high and swing low, using ratios pulled from the Fibonacci number sequence rather than from volume or momentum data.

The sequence, where each number equals the sum of the two before it (1, 1, 2, 3, 5, 8, 13, 21...), produces ratios that converge on 0.618 and 1.618: the golden ratio. Charting platforms translate these into the percentages 23.6%, 38.2%, 50%, 61.8%, and 78.6%. The 50% level isn't strictly a Fibonacci ratio but is kept because markets often give back roughly half of a prior move before resuming trend. The 61.8% level, often nicknamed the "golden pocket," gets the most attention as a last likely support before a trend reversal.

Drawing the tool is simple: a trader anchors it at the start of a price swing and drags to the end of that swing, and the platform plots the levels automatically as price pulls back. For example, if bitcoin rallies from $60,000 to $100,000, the 61.8% retracement sits at roughly $75,280, a level many Bitcoin traders watch for a bounce before the uptrend resumes. Because crypto swings are large and fast, the levels are usually combined with other technical analysis tools, such as moving averages or RSI, rather than traded on their own.

Beyond retracement, the same ratios are extended past 100%, commonly to 127.2%, 161.8%, and 261.8%, to project profit targets once price breaks to a new high or low. None of these levels guarantee a reaction: their power comes mainly from how widely they're watched, not from any predictive law of price, so they work best as a map of where to pay attention rather than a signal on their own.