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What is Fibonacci retracement and how to apply it?

Fibonacci retracement is a technical tool used to identify potential support and resistance levels in forex trading. Based on the Fibonacci sequence, key retracement levels include 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Traders apply Fibonacci retracement by drawing it from a recent swing high to a swing low (in a downtrend) or from a swing low to a swing high (in an uptrend). The horizontal lines that appear show where price may retrace before resuming the main trend. For example, in a bullish trend, traders often watch the 38.2% or 61.8% retracement levels for possible buying opportunities. Fibonacci works best when combined with other signals such as candlestick patterns or moving averages. It does not predict direction but helps identify zones where reversals or continuations are likely. Traders must be cautious not to rely on Fibonacci alone, as it can be subjective, but when used with trend confirmation, it becomes a powerful planning tool.