After a big up-move, traders often expect a partial pullback before the trend resumes. Fibonacci retracement marks candidate pullback levels at 38.2%, 50% and 61.8% of the move. The percentages come from the Fibonacci number sequence (each number the sum of the previous two), whose ratios show up in some natural patterns — which is where the mystique comes from.
How it's used
You take the low and high of a swing, drop the Fibonacci grid on it, and watch whether price stalls or turns near one of those lines — most eyes are on 61.8%, the "golden ratio". It's used to guess where a pullback might find footing.
The catch — read this
There is no accepted economic reason a stock should respect a ratio from a medieval rabbit-breeding puzzle. To the extent these levels "work", it's largely self-fulfilling — enough traders place orders there that the level briefly matters — and rigorous tests find little reliable edge once you account for the many levels, the freedom in picking the swing, and realistic costs. We publish no strategy built on it, because we only publish rules we can back with a real, reproducible track record (§ our methodology). Treat it as chart folklore, interesting to know, not an edge.
Educational material — not investment advice.