A Fibonacci retracement is based on the key numbers identified by mathematician Leonardo Fibonacci. A Fibonacci retracement is created by taking two extreme points usually a trough and a peak on a stock chart and the vertical distance is divided by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible resistance and support levels. The Fibonacci number series is 0,1,1,2,3,5,8,13,21,34,55,89,144,... 61.8% ratio is obtained by dividing the number with the next number in the Fibonacci number series. 21 divided by 34 gives 61.8%. 38.2% ratio is obtained by dividing the number with the number two places away from it. 21 divided by 55 gives 38.2%. 23.6% ratio is obtained by dividing the number with the number three places away from it. 21 divided by 89 gives 23.6%. 100% ratio can be obtained by dividing the number with itself. 50% ratio is not a Fibonacci ratio but it is used because of the overwhelming tendency of an asset to move in the same direction once it completes 50% retracement level.

Rohit Ladanswered.A Fibonacci retracement is based on the key numbers identified by mathematician Leonardo Fibonacci. A Fibonacci retracement is created by taking two extreme points usually a trough and a peak on a stock chart and the vertical distance is divided by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible resistance and support levels.

The Fibonacci number series is 0,1,1,2,3,5,8,13,21,34,55,89,144,...

61.8% ratio is obtained by dividing the number with the next number in the Fibonacci number series. 21 divided by 34 gives 61.8%. 38.2% ratio is obtained by dividing the number with the number two places away from it. 21 divided by 55 gives 38.2%. 23.6% ratio is obtained by dividing the number with the number three places away from it. 21 divided by 89 gives 23.6%. 100% ratio can be obtained by dividing the number with itself. 50% ratio is not a Fibonacci ratio but it is used because of the overwhelming tendency of an asset to move in the same direction once it completes 50% retracement level.