Definition ∞ Fibonacci Retracement is a technical analysis tool used by traders to identify potential support and resistance levels in an asset’s price movement. It involves drawing horizontal lines at key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 78.6% between two extreme price points, typically a swing high and a swing low. These levels are believed to indicate areas where the price might pause or reverse before continuing its overall trend. This tool helps anticipate price corrections within a larger trend, offering potential entry or exit points.
Context ∞ The discussion surrounding Fibonacci Retracement often focuses on its subjective application, as the choice of swing high and low points can vary among analysts, leading to different interpretations. A key debate involves its predictive power versus its descriptive utility in confirming existing market structures and psychological price levels. Future developments include its integration into algorithmic trading models and its continued use as a foundational tool for identifying potential turning points in volatile digital asset markets.
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