Definition
Fibonacci Retracement
Fibonacci retracement marks potential support and resistance levels at key ratios of a prior price move.
After a strong up or down move, traders draw retracement levels at 23.6%, 38.2%, 50%, 61.8%, and 78.6% between the swing high and low. These ratios, derived from the Fibonacci sequence, often act as zones where a pullback stalls and the trend resumes — the 61.8% golden ratio being the most watched.
Indian technical traders use Fibonacci retracement on Nifty, Bank Nifty, and individual stocks to plan entries during pullbacks and to set stop losses just beyond a level. It works best as a confluence tool, lining up with trendlines, moving averages, or prior support and resistance.
Related terms
- Pivot PointsPivot points are calculated support and resistance levels derived from the previous session's high, low, and close.
- Elliott WaveElliott Wave theory holds that markets move in repeating cycles of five impulse waves followed by three corrective waves.
- TrendlineA trendline is a straight line connecting a series of highs or lows to visualise the direction and slope of a trend.
- Support and ResistanceSupport is a price level where buying tends to halt a fall; resistance is a level where selling tends to cap a rise.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.