Do you know what a Fibonacci retracement is?

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A Fibonacci retracement is a technical indicator commonly used in trading to indicate the price support and resistance levels of a financial unit (e.g. a stock). It’s a term you probably read often in our chartist articles from Gary Stone or Lance Lai.

In order to define the Fibonacci retracement in simple terms, we must first understand the concepts of ‘Fibonacci’ and ‘retracement’.

The word ‘Fibonacci’ might take you back to high school maths. In case you need a reminder, a Fibonacci number is found by adding the two preceding numbers in the sequence, e.g. 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 etc. (i.e. 0+1 = 1; 1+1 = 2, and so on). The approximate ratio between Fibonacci numbers is 1.618, aka Φ (Phi) or the ‘Golden Ratio’ – e.g. 55 x 1.618 = 89.

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