# Introduction to Fibonacci Retracements A Fibonacci retracement is a ratio that can be used to determine potential reversal levels. Found in the Fibonacci Sequence, the most common retracements are 38.2% and 61.8%, usually rounded to 38% and 62%. Following an advance, Fibonacci ratios are applied in order to define the retracement levels and to forecast a pullback or a correction’s extent. It is also possible to apply Fibonacci Retracements following a decline in order to forecast a counter trend bounce’s length. Traders can combine Fibonacci Retracements with other price patterns and indicators to define an overall trading strategy.

## What is the Fibonacci Sequence and the Golden Ratio?

Although the Finbonacci Sequence and Golden Ratio are quite a complex mathematical concepts, there is only the need for a trader to understand the necessary basics in order to grasp the ideas behind the theory.
The sequence was introduced to the west by Leonardo Pisano Bogollo, who was an Italian mathematician in the late 12th and early 13th centuries.

The sequence works as follows:

• 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and so on to infinity.
• Following 0 and 1, every number is found by adding the two previous numbers. For example 1+1=2, 2+1=3, 3+2=5 etc.
• Any number approximates 1.618 when divided by its prior number. E.g. 89/55=1.618, 55/34=1.6176 etc.
• When any number is divided by the next number, it will approximate .6180 e.g. 55/89=0.6179, 34/55=0.6181 etc. This forms the basis for 61.8% retracement.
• If a number is divided by a number that is found two places higher, it will approximaste .3820 e.g. 34/89=0.3820. This principle forms the basis for 38.2% retracement.
• When a number is divided by a number that is three places higher than itself, it will approximate .2360 e.g. 13/55=0.2363. This forms the basis for 23.6% retracement.

The Golden Ratio is a reference to 1.618, with the inverse of 1.618 being .618. In nature, biology, art and architecture these ratios can often be found. For example, the Golden Ratio is used to create the shape of playing cards, is found in snail shells and sunflowers and even the spiralling galaxies in space.