In technical analysis a Fibonacci retracement is created by taking two extreme points (usually a peak and a trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.
Fibonacci retracements are popular tools that traders can use to draw support lines, identify resistance levels, place stop-loss orders, and set target prices.
A Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.
Fibonacci retracements suffer from the same drawbacks as other universal trading tools, so they are best used in conjunction with other indicators.
By using Fibonacci's analysis, we can get an insight into when it is a good time to buy and sell. By creating an overview of where the trend line reaches a support or resistance, we can predict how the stock will develop. Let's say it is going to fall further and break the strong support level then it will be very likely to fall all the way down to 0.876. If it rises it will get some good support on the way up which will lift it even more.