Fibonacci Retracement

Fibonacci retracement is a charting tool that projects horizontal levels at fixed percentages of a prior price move — commonly 23.6%, 38.2%, 50%, 61.8%, and 78.6% — to estimate where a pullback might stall before the trend resumes. The trader anchors the tool at a significant swing low and swing high; the levels then mark how much of that move has been retraced. The percentages derive from ratios found in the Fibonacci number sequence, with 61.8% (the inverse of the golden ratio) considered the signature level.

For example, if Bitcoin rallies from $50,000 to $70,000 and then pulls back, the 38.2% retracement sits at $62,360 and the 61.8% retracement at $57,640. A trader expecting the uptrend to continue might watch those areas for signs of buying, placing a stop below the 78.6% level.

A common misconception is that these levels have inherent mathematical power over markets; there is no proven natural law at work, and the levels' usefulness comes largely from the fact that many traders watch the same lines, concentrating orders around them. Anchoring is also subjective — different swing choices produce different levels — so retracements work best combined with independent support, resistance, or moving averages.