KEY TAKEAWAYS
- Fibonacci retracements are popular tools that traders can use to draw support lines, identify resistance levels, place stop-loss orders, and set target prices.
- A Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.1
- Fibonacci retracements suffer from the same drawbacks as other universal trading tools, so they are best used in conjunction with other indicators.
