What is Fibonacci Retracement?
Fibonacci retracement is a technical analysis tool based on the mathematical Fibonacci sequence. Traders use horizontal lines at key Fibonacci ratios — 23.6%, 38.2%, 50%, 61.8%, and 78.6% — to identify potential support and resistance levels where price may reverse during a pullback within a larger trend.
The Golden Ratio — 61.8%
The 61.8% level (the golden ratio) is considered the most important Fibonacci level. When price pulls back to 61.8% of a previous move and holds, it often signals a strong continuation of the original trend. This is where professional traders look for entries with the tightest risk-reward setups.
How to Use Fibonacci in Crypto
Step 1: Identify a clear swing low and swing high on your chart (or vice versa in a downtrend).
Step 2: Draw the Fibonacci tool from the swing low to the swing high.
Step 3: Watch for price reactions at the key levels — especially 38.2%, 50%, and 61.8%.
Step 4: Combine with other confirmations — RSI at oversold, a bullish candle pattern, or volume increase at the Fibonacci level.
Fibonacci Extension
Beyond retracement, Fibonacci extensions (127.2%, 161.8%, 261.8%) help set profit targets. If price bounces from the 61.8% retracement, the 127.2% and 161.8% extensions of the pullback are common targets. These levels are widely used in swing trading for setting take-profit orders.
Our technical analysis courses include detailed Fibonacci trading setups with real chart examples.