Fibonacci retracements are percentage retracement lines that are based upon the mathematical relationship within the Fibonacci sequence.
This sequence bears the name of Italian mathematician Leonardo of Pisa, who was later known as Fibonacci. His number sequence appears frequently and unexpectedly in mathematics and is sometimes said to have an inherent relationship with natural cycles.
Despite a lack of consensus as to whether this relationship extends to the price of assets, many traders and trading algorithms still frequently employ these ratios in their trading.
As a result, Fibonacci retracements are a handy tool to pre-empt increased buy and sell volume, particularly in the absence of other support and resistance levels.
Plot Fibonacci retracements on the BTSE platform.
Used to find support/resistance level after big moves when other support/resistance references are lacking.
How To Plot Fibonacci Retracements
Step 1: Find a chart that has had a big move up/down
Step 2: Click Gann and Fibonacci Tools in the toolbar
Step 3: Select the Fib Retracement tool
Step 4: Click and drag the pointer from the absolute low trend to the top
How To Read Fibonacci Retracements
As you can see, in the absence of any clear support levels, the 0.236 retracement level (red) indicated a level of support of ~$247 from which the price subsequently bounced twice.
If the support level breaks, the following Fibonacci level of 0.382 (yellow) would become the next level of anticipated buy support.
Click and drag the Fib retracement tool from a high to a low to anticipate resistance levels in a bearish trend.
Limitations Of Fibonacci Retracements
Fibonacci levels merely indicate where the price is expected to see increased buying/selling
They do not tell traders where the price will bounce.
Over-reliance on the accuracy of any indicator can lead to heavy losses without proper money management.
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