Fibonacci retracement levels are horizontal lines that indicate the possible support and resistance levels where the price might reverse direction.
The first thing you should know about the Fibonacci tool is that it works best when the market is trending.
The idea is to go long (or buy) on a retracement at a Fibonacci support level when the market is trending UP.
And to go short (or sell) on a retracement at a Fibonacci resistance level when the market is trending DOWN.
Fibonacci retracement levels are considered a predictive technical indicator.
This is because they attempt to identify where prices may be in the future.
The theory is that after the price begins a new trend direction, the price will retrace or return partway back to a previous price level before resuming its trend.