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Fibonacci Retracements

Fibonacci Retracements is a popular tool in technical analysis that uses horizontal lines to predict potential support and resistance levels, based on the Fibonacci numbers. These retracement levels indicate where the price could potentially find support or resistance following a significant price movement.

The key Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8% and 100%, each derived from the Fibonacci number sequence, which starts with 0 and 1, with each subsequent number being the sum of the previous two numbers. In the context of trading, these ratios are used to identify potential reversal levels.

For example, after a significant price increase, you might use Fibonacci retracement levels to predict where the price could potentially start to bounce back or ‘retrace.’ If it retraces to the 50% level, that means it has given back 50% of its recent move.

Traders use these levels as a guide to adjust their trades or to time their entries and exits. It’s important to remember, however, that while Fibonacci retracements can be helpful, they are not guaranteed to predict market movements accurately and should be used in conjunction with other technical indicators.

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