Fibonacci Retracement

A technical analysis tool using horizontal lines at key Fibonacci ratios to identify potential support and resistance levels.

What Is Fibonacci Retracement?

Fibonacci retracement is a popular technical analysis tool that uses horizontal lines to indicate areas of potential support or resistance at the key Fibonacci levels before the price continues in the original direction. These levels are derived from the Fibonacci sequence — a mathematical series where each number is the sum of the two preceding ones (0, 1, 1, 2, 3, 5, 8, 13, 21…).

Key Fibonacci Levels

• 23.6%: Shallow retracement. Common in strong trends — the trend barely pauses before continuing.
• 38.2%: Moderate retracement. Often the first meaningful support/resistance level traders watch.
• 50.0%: Not technically a Fibonacci ratio, but widely used. Represents a halfway retracement of the prior move.
• 61.8%: The "golden ratio." Considered the most important Fibonacci level. Major trend reversals often occur here.
• 78.6%: Deep retracement. If a stock retraces this far, the original trend may be in jeopardy.

Fibonacci and Earnings Gaps

After a post-earnings gap, Fibonacci retracement can help predict how far the stock might pull back before continuing in the gap direction. For example, if a stock gaps up from $100 to $120 after a beat, Fibonacci suggests potential support at $112.36 (38.2%), $110 (50%), and $107.64 (61.8%). These become natural entry points for traders who missed the initial move.