Fibonacci retracements are a go-to tool for many traders. Why? Because they help spot potential market turning points using simple math (thanks, Leonardo Fibonacci!). Let’s break it down in a way that actually makes sense-no math degree required!

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What’s the deal with Fibonacci numbers?

Fibonacci numbers come from a sequence discovered by the mathematician Leonardo Bonacci. The pattern starts with 0 and 1, and each new number is the sum of the two before it: 0, 1, 1, 2, 3, 5, 8, 13, 21… and so on.

This pattern shows up everywhere in nature-from the spirals of seashells to the way sunflower seeds are arranged. And, as it turns out, financial markets seem to follow these same proportions. Pretty cool, right?

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How Fibonacci retracement levels work

The Fibonacci retracement tool draws seven horizontal lines on a price chart, pinpointing where support or resistance levels might pop up after a price swing. These key levels are:

• 0% (starting point of the trend)
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• 23.6%
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• 38.2%
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• 50% (not officially a Fibonacci number, but traders love it)
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• 61.8% (the golden ratio, aka the magic number)
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• 78.6%
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• 100% (end of the trend)
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How do you use them? Simple. Find a big price move (up or down), and the retracement levels will help predict where the price might take a breather or reverse.

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Spotting Fibonacci levels in action

Let’s say the price of an asset shoots up from $100 to $200. If it retraces (aka pulls back), you might expect support around key Fibonacci levels. For example, a 50% retracement means the price could dip to $150 before bouncing back.

Different levels mean different things:

• 23.6% - 38.2%: Quick retracements, often in strong trends.
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• 50% - 61.8%: Key zones where price tends to stall or reverse.
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• 78.6% - 100%: Deeper pullbacks, potential trend reversals.
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How to use Fibonacci retracements in trading

Most trading platforms (including Deriv MT5) have a built-in Fibonacci tool. You can find it under: Insert > Fibonacci > Fibonacci Retracement.

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Ways to use Fibonacci retracement levels:

• With support/resistance: If a Fibonacci level aligns with previous highs/lows, that zone becomes even more significant.
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• With moving averages: A retracement to a moving average (like the 50-day MA) can confirm a reversal.
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• With candlestick patterns: A bullish engulfing candle near the 61.8% level? That’s a strong signal. 
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• Across timeframes: Zoom out to see major levels that bigger traders might be watching.
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• With RSI or Stochastics: Oversold at a key Fibonacci level? That’s a potential buy signal.

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