What is Fibonacci retracement?

How far can a price pull back after a rise without the trend necessarily having changed?

That’s the question analysts try to approach with Fibonacci retracement levels. Think of a tape measure laid over the chart: instead of measuring inches, it measures what percentage of a previous move the price has given back in the opposite direction.

In practice, the user picks a significant low and a high. The tool draws horizontal lines between them at the 23.6%, 38.2%, 50%, 61.8% and 78.6% levels. The ratios are linked to the Fibonacci sequence, where each number is the sum of the two before it. The 50% is a conventional level used alongside them, not a ratio derived from the sequence.

For example, if a hypothetical coin rises from €100 to €200, its gain is €100. A 38.2% retracement of that move corresponds to a price of €161.80. At 50% the price is €150, and at 61.8% it’s €138.20. After a drop, the same tool is used to examine an upward bounce.

Why it matters

When you read that “Bitcoin is testing the 61.8% Fibonacci,” the writer is referring to a specific retracement percentage of a chosen move. They don’t mean the price has fallen 61.8% from its all-time high.

The lines help organize how you read a chart and spot areas of possible support or resistance. We treat them as points to watch, not standalone trading signals. When they line up with previous highs, lows or higher trading volume, that adds evidence to the analysis, not certainty.

What to watch out for

Choosing the two endpoints changes the results. Two analysts can draw different levels on the same chart, especially if they’re looking at different time periods.

No percentage forces the market to react. The price can slice through several lines without stopping, while a temporary bounce doesn’t prove a change in trend. Fibonacci retracement also doesn’t show when a move will happen or how likely it is.