# Fibonacci retracement levels Fibonacci retracement levels refer to areas of support or resistance calculated by using the Fibonacci sequence. A central concept here is what’s called the Golden Ratio, which refers to 1.618 and it’s inverse .618. The Italian mathematician, Leonardo Fibonacci (1170-1250), is credited for bringing the sequence to the West. Using the sequence, Fibonacci noticed that certain ratios could be calculated, and that these correspond to “divine ratios” found throughout nature, architecture and art. To learn more, watch the video or continue reading below:

## The Sequence and Ratios

For trading purposes, it’s sufficient to introduce the basic idea behind the Fibonacci sequence:

The sequence extends to infinity and starts as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610……

After 0 and 1, each number is the sum of the two prior numbers, i.e. 0+1=1, 1+1=2, 1+2=3, 2+3=5, 5+8=13, 8+13=21, 13+21=34, 21+34=55 etc. The sequence used to calculate fibonacci retracement levels contains many unique mathematical properties:

• If a number is divided by the previous number it approximates 1.618 (21/13=1.6153, 34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The higher the numbers, the closer one will get to 1.6180.
• When a number is divided by the next highest number, it approximates .6180 (13/21=.6190, 21/34=.6176, 34/55=.6181, 55/89=.6179 etc….). The higher the numbers, the closer one will get to .6180. This is the basis for the 61.8% retracement.
• If a number is divided by another two places higher, it approximates .3820 (13/34=.3823, 21/55=.3818, 34/89=.3820, 55/=144=3819 etc….). The higher the numbers, the closer one will get to .3820. This is the basis for the 38.2% retracement. Also, 1 – .618 = .382 (!).
• When a number is divided by another three places higher, it approximates .2360 (13/55=.2363, 21/89=.2359, 34/144=.2361, 55/233=.2360 etc….). The higher the numbers, the closer one will get to .2360. This is the basis for the 23.6% retracement.

## Fibonacci retracements vs. Fibonacci extensions

Fib levels are used to identify potential reversal and extension scenarios. Following a strong uptrend, you can use Fibonacci retracement levels to predict the extent of a pullback. You can achieve the same during a downtrend, i.e. evaluating how far a counter-trend bounce may retrace. The levels from the current day are found by measuring the distance between the day high / low and dividing the vertical distance by the key Fibonacci ratios. The most commonly used Fibonacci retracement levels are 38.2% and 61.8%. Although the 50% retracement is not part of the Fibonacci sequence, it is almost always included as a point of reference (half the range).