Fibonacci retracements are a technical analysis tool used to identify potential support and resistance levels based on key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%). Traders apply these levels to recent price moves to predict where a pullback might pause or reverse before the trend resumes. It’s often used in swing and trend trading strategies.
Example:
If Ethereum rallies from $2,000 to $3,000, a trader might use Fibonacci retracement to look for a bounce around $2,618 (61.8%, golden pocket) before resuming the uptrend.