The Fibonacci Retracement chart is a useful tool for traders seeking to identify support and resistance levels for an asset’s price.
The tool consists of a 7- to 365-day price candlestick chart for the asset overlaid with potential retracement lines. These horizontal lines intersect the trend line at the levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%. The lines are based on the mathematical relationship between numbers in the famed Fibonacci sequence.
Over a period of time, an asset’s price will often retrace a percentage of the previous trend before continuing its move in the original direction. Many traders believe that these retracements follow the Fibonacci sequence. For those who follow that logic, the retracement lines on our Fibonacci chart may be used to indicate support and resistance levels (price targets).
When an asset’s price reaches a Fibonacci retracement level, it may reverse or stall, opening up the potential for a beneficial trade. For example, an asset’s price could be dropping, and the trader might notice it getting close to the 61.8% Fibonacci retracement level. The trader may feel that the downward price action will begin to reverse once it hits the 61.8% level, so this is where they may set their buy order.
It is advisable to consult the Fibonacci Retracement chart in conjunction with additional charts within the Range Report such as the Ultimate Oscillator and RSI, so as to gain a further understanding of market trends.