Fibonacci Retracement is a technical analysis tool used to identify potential support and resistance levels during a price correction. It is based on key ratios derived from the Fibonacci sequence, most commonly 23.6%, 38.2%, 50%, 61.8% and 78.6%. Traders apply these levels to a chart to anticipate where a pullback might pause or reverse before the trend continues.

This tool works by measuring the distance between a significant price high and low, then plotting the Fibonacci ratios across that range. During an uptrend, traders watch these retracement levels to identify potential entry points when the price temporarily moves downward. In a downtrend, the same levels help highlight areas where a short-term bounce may lose strength. Fibonacci Retracement is widely used because it offers a structured way to study market psychology and natural price behavior.

While it is not a predictive tool on its own, combining Fibonacci Retracement with other indicators such as volume, trendlines or candlestick patterns can strengthen trading decisions. Its popularity comes from its simplicity and effectiveness in spotting areas where traders commonly react, making it a key reference in both crypto and traditional markets.