What is Fibonacci retracement and how does it work? (2025)
The fibonacci retracement level tool helps traders identify reversal points and profit targets. In 2025, traders will combine fibonacci levels with oscillators and candlestick patterns to improve accuracy, where the 0.236 level is best suited for high momentum trading (68% success rate), while the 0.618 level serves as the strongest reversal point (75% success rate). AI tools can now automatically identify key fibonacci levels, increasing efficiency.
Latest Developments in 2025
The fibonacci retracement tool continues to evolve into a key component of cryptocurrency trading strategies. By 2025, traders are increasingly combining fibonacci levels with other technical indicators to enhance trading accuracy. When the fibonacci retracement levels align with key technical indicators such as RSI, MACD, or trend lines, the likelihood of price reacting at these levels significantly increases.
Key Insights for Trading Models in 2025:
- 0.236 fibonacci retracement level is most effective for high momentum trading with large trading volumes.
- The 0.382 level is usually considered a transition point, and the price often continues to reach the 0.5 level.
- Combining Fibonacci with candlestick patterns significantly improves the accuracy of entry/exit points.
Traders now rely on the characteristics of specific fibonacci retracement levels:
| fibonacci level | Trading Application | success rate |
|---|---|---|
| 0.236 | high momentum entry | 68% |
| 0.382 | medium pullback | 52% |
| 0.618 | strong reversal point | 75% |
| 0.786 | deep pullback | 63% |
The most successful trading method is to combine fibonacci retracement levels with oscillators and candlestick analysis to create a comprehensive technical framework. This multi-indicator approach has become standard practice on various platforms such as Gate, suitable for traders looking to obtain more reliable signals in the volatile cryptocurrency market.
AI-driven tools can now automatically identify key fibonacci retracement levels, significantly reducing the analysis time required by traders while improving decision-making efficiency.
Everything excellent traders should know about fibonacci retracement level
- The fibonacci retracement level tool helps traders identify reversal points and profit targets.
- The Fibonacci sequence includes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and 377.
- 0%;23.6%;38.2%;61.8%;78.6% and 100% are key fibonacci retracement level ratios.
- By using fibonacci retracement levels, traders can more accurately determine entry and exit points.
Introduction
Predict the future price trend The ability determines the success or failure of traders, whether trading cryptocurrencies or forex. To achieve trading profits, traders can reasonably utilize various technical tools, including many indicators such as Bollinger Bands, Ichimoku Cloud, Relative Strength Index, Stochastic Relative Strength Index (RSI), Moving Averages, and fibonacci retracement level. In this article, we will focus on discussing the fibonacci retracement level tool.
What is fibonacci retracement level?
The fibonacci retracement level tool is based on the discoveries of the Italian mathematician Leonardo de Pisa from 700 years ago. In fact, the fibonacci retracement level tool can help traders identify turning points or reversal points on trading charts, allowing them to more accurately determine entry and exit points and achieve profits.
By using the fibonacci retracement level, traders can achieve this goal based on the established ratios generated by the fibonacci sequence.
Fibonacci sequence
The Fibonacci sequence is a series of numbers where the sum of any two consecutive numbers gives the next number, such as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377. We can see in this number sequence that 1 plus 2 equals 3, 2 plus 3 equals 5, and so on.
This sequence has an interesting characteristic - if you divide any number in this sequence by the number before it, you will get the same number - 1.618. This number is known as the golden ratio and applies to various scientific fields, such as engineering, etc. The following are some examples:
8⁄7 = 1.618
144⁄233= 1.618
89⁄55= 1.618
Other characteristics of the Fibonacci sequence
Another feature of the Fibonacci sequence is that if you divide a number by a number that is 2 greater than it, you will get the same number — 0.382, for example:
34⁄89 = 0.382
89⁄233 = 0.382
The third characteristic of the Fibonacci sequence is that if you divide any number by the number that is three places larger than it, you will also get the same number — 0.236, for example:
21⁄89 = 0.236
55⁄233 = 0.236
0.236, 0.382, and 1.618 are very important numbers when we use the fibonacci retracement level tool for trading. We can express these same numbers as percentages, as shown in the figure below: 23.6%, 38.2%, and 161.8%.
fibonacci retracement level ratio
There are several ways to calculate ratios or percentages from a sequence. Some important ratios include 0%, 23.6%, 38.2%, 61.8%, 78.6%, and 100%.
However, there are also some other important ratios, such as 50%; 161.8% and 261.8%. Although encountering the 50% ratio during calculations is almost impossible, this ratio is significant because it represents the midpoint between 0% and 100%.
It is also worth noting that 61.8% is the reciprocal of 1.618%. We also use it when making trading decisions. In other words, when we divide any number by the next number, we get 0.618 (rounded to three decimal places). For example, 21/34 = 0.6176, which rounds to 0.618 when rounded to three decimal places.
Therefore, the four ratios derived from the Fibonacci sequence of 23.6%, 38.2%, 61.8%, and 78.6% become key fibonacci retracement levels. Thus, there are four areas that can stop and reverse the price downtrend pullback. Typically, these are hidden support and resistance levels. When we draw horizontal lines along these points, we get the fibonacci retracement levels.
How to use fibonacci retracement level in trading
After discussing the above content, let’s take a look at how to use the fibonacci retracement level tool when making trading decisions. As mentioned earlier, the fibonacci retracement level tool can help traders identify potential reversal points. We can use the fibonacci tool in price uptrends and downtrends. However, it is important to note that we cannot use it to limit the market range.
The first thing traders should do is draw fibonacci retracement levels that act as dynamic support and resistance. Traders can use support and resistance areas to determine entry and exit zones for trades. They can also use these levels to set profit targets and stop-loss points.
For example, based on the asset’s price trend Traders can buy cryptocurrency when the price is at the 38.2% pullback level and sell cryptocurrency when the price reaches 23.6%.
How to draw fibonacci retracement level
First, traders should learn to identify the major swing highs and swing lows. During an uptrend, simply click on the swing low and drag the cursor to the swing high, and vice versa for a downtrend. Traders need to click on the swing high and drag the cursor down to the swing low. As shown in the chart below:
After completing the above steps, the charting tool will place various pullback lines. From the above figure, the levels are 7955 (23.6%), 7764 (38.2%), 7609 (50.0%), 7454 (61.8%), and 7263 (76.4%).
From the above image, it can be seen that the price rebounded by 23.6% and 38.2%. However, it did not continue to fall below the 38.2% level. After learning and understanding the information above, you can make trading decisions based on these levels.
fibonacci extension
Traders can also trade based on fibonacci extension. Extensions are levels that traders use to establish potential profit targets based on specific price trends. This is because each trader can select a potential profit target beyond the existing range.
From the above chart, it can be seen that the main extension levels are 138.6%, 150%, 161.8%, 261.8%, and 423.6%. Therefore, traders can combine the use of fibonacci retracement level lines and extension levels to make trading decisions.
Conclusion
Fibonacci retracement level is a technical analysis tool used by traders to predict potential price movements. In short, traders can go long along the Fibonacci dynamic support levels and sell at the appropriate dynamic resistance levels. Like any trading indicator, it is recommended that traders use Fibonacci retracement levels in conjunction with other trading tools.
