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Fibonacci retracement is a technical analysis tool that uses horizontal lines to identify potential support and resistance levels based on the Fibonacci sequence. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Traders draw retracements from a swing high to a swing low (or vice versa) to predict where a price pullback may stall and reverse back in the direction of the trend.
EUR/USD rallies from 1.0800 to 1.1200. You draw a Fibonacci retracement from the low to the high. The price pulls back to the 61.8% level at 1.0953 and bounces. This is a common entry point for traders expecting the uptrend to resume.
