One of the things that day traders need to keep track of throughout the trading day are support and resistance levels. Useful technical analysis tools that help with this task are Fibonacci retracements. What a day trader works with are horizontal lines on a stock chart indicating where possible support and resistance levels are. The Fibonacci concept goes back more than two millennia to ancient India and was introduced to the West in the late Middle Ages by the Italian mathematician Leonardo Fibonacci. How are Fibonacci retracements useful in day trading?

## What Are Fibonacci Retracements and How Can They Help Day Traders?

A Fibonacci sequence is a series of numbers. Each number is the sum of the two preceding numbers. The simplest is 1, 1, 2, 3, 5, 8, 13 and so forth. Such sequences appear very often in mathematics as well as in nature. Fibonacci retracements are derived from Fibonacci sequences. Retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. In day trading these retracement levels help define levels between highs and lows where prices may stall or reverse. As with all technical indicators, Fibonacci retracements should never be used alone as a guide to day trading.

## Understanding the Basics of Fibonacci Retracements

Fibonacci retracements are set between high and low market prices at fixed percentages. Traders who use this technical analysis tool commonly set their price targets using the retracement percentages. They are also commonly used for stop-loss levels and entry levels. These levels are static as they are based on fixed percentages. Some traders find this easier to work with than constantly fluctuating indicators like simple or exponential moving averages.

When using Fibonacci retracements, a trader needs to have at least one other technical analysis tool to confirm what Fibonacci retracements lead them to suspect in the day trading market. As with other technical indicators, the market is telling you what the market will do next. In the case of Fibonacci retracements, the market high and low are the input from the market and the retracement percentages are predictable levels to which markets tend to move as they fluctuate throughout the day.