A Fibonacci retracement is a popular drawing tool that traders use to identify potential levels of support and resistance in the price of an asset. With Sonarlah we use it for extra confluence around other levels and trade ideas.

In the context of trading, Fibonacci retracements are created by taking two extreme points (usually a swing high and a swing low) and dividing the vertical distance by key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. In ICT we use the Fibonacci retracement for entries and for take profit zones. We will show you a few examples on how to implement it in some other articles. The Fibonacci levels ICT uses are the: 0.705, 0.79, -0.62, -0.27 and -1. The - digits are used for targets. Once these levels are identified, horizontal lines are drawn and used to identify possible levels of support and resistance.

These levels are best used as a tool within a broader trading strategy, providing potential entry points, stop loss levels, or profit targets. They're based on the idea that markets often retrace a predictable portion of a move, after which they continue to move in the original direction. It's important to note, however, that like any trading tool, Fibonacci retracements aren't foolproof and should be used in conjunction with other technical analysis tools for best results, like our other tools. It is all about stacking confluences.

We also offer a free indicator which helps you find Fibonacci levels on autopilot. It connects the swing high and low with the Fibonacci levels automatically for you, so you don't have to do it yourself. This tool is the first of it's kind and makes it possible to have Fibonacci levels automatically plotted. You can enable this indicator by signing up for your Sonarlab account and connect the Free Indicator in the Sonarlab dashboard.