Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 0%, 25%, 38%, 50%, 62% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
Key Fibonacci Retracement ratios:
- 25%(0.250)
- 50%(0.50)
- 62%(0.618)
