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Fibonacci retracement definition
Fibonacci retracement is a charting tool that uses set percentage levels to measure how far price has pulled back within a larger move. You draw it from a swing low to a swing high in an uptrend, or from a swing high to a swing low in a downtrend.
The common Fibonacci retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. These levels mark areas where buyers or sellers may react during a correction.
Fibonacci retracement does not predict direction on its own. It measures a pullback inside a move, whereas a Fibonacci extension projects targets beyond the move's end. You combine retracement levels with support and resistance, trendlines, candlestick patterns, volume, or momentum before treating a level as a signal.
Fibonacci retracement Example
EUR/USD rises from 1.0800 to 1.1000.
You apply Fibonacci retracement to that move.
If price pulls back toward the 38.2% or 61.8% level and shows bullish confirmation, you can watch that area for a possible continuation.
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