Fibonacci retracement levels are horizontal lines that indicate areas of support or resistance at the key Fibonacci levels before the price continues to move in its original direction. These levels are derived from the Fibonacci sequence and are calculated by dividing any number in the sequence by the number that comes two places after it. The Fibonacci retracement levels include:
These levels are considered significant because they represent levels where the price is likely to experience a pullback before continuing in the direction of the original trend.
Traders use these levels as potential areas to enter a trade, as they may indicate a possible reversal or continuation of a trend. For example, if the price is in an uptrend and retraces to the 50% Fibonacci level, it may be seen as a potential buying opportunity as the price may continue to move up. Conversely, if the price is in a downtrend and retraces to the 50% level, it may be seen as a potential selling opportunity as the price may continue to move down.
It's important to note that Fibonacci retracements should not be relied on solely as the basis for making trading decisions. Traders should use other technical indicators and analysis to confirm the signals given by Fibonacci retracements.
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