On which factors does the Fibonacci levels depend?

<p>Fibonacci levels, like retracement, extensions, and fan levels, are derived from the Fibonacci sequence and the Golden Ratio (approximately 1.618). They are used in technical analysis to identify potential support and resistance areas in price movements. Specifically, Fibonacci retracement levels are based on ratios derived from the Fibonacci sequence and are plotted as horizontal lines on a chart between key high and low points.<br></p>

<p id="isPasted">Fibonacci levels depend on the chosen high and low price points of a market movement and the Fibonacci ratios (23.6%, 38.2%, 61.8%) used to calculate potential support and resistance zones. Their effectiveness also relies on market conditions, the chosen timeframe, the asset being traded, and how well they align with other technical indicators and trend analysis. &nbsp;</p><p><strong>1. Price Swing (High and Low)</strong></p><p>Fibonacci levels are drawn between two extreme points: a significant price high and a subsequent low (or vice versa).&nbsp;</p><p>The vertical distance between these two points forms the base for the calculations, which are then multiplied by the Fibonacci ratios.&nbsp;</p><p><strong>2. Fibonacci Ratios</strong></p><p>These levels are derived from the Fibonacci sequence, where each number is the sum of the two preceding ones (e.g., 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...).&nbsp;</p><p>Dividing one number by the number to its right gives the 61.8% ratio, and dividing by the number two places to the right gives the 38.2% ratio.&nbsp;</p><p>Commonly used levels are 23.6%, 38.2%, 61.8%, and the 50% level (often included for practical reasons).&nbsp;</p><p><strong>3. Market Conditions and Timeframe</strong></p><p>Timeframe: Longer timeframes (like monthly charts) provide more reliable Fibonacci levels by reducing short-term market noise and highlighting major trends.&nbsp;</p><p>Market State: In high-volatility markets, traders might use wider stops, while in low-volatility markets, focusing on 23.6% and 38.2% levels can be more effective.&nbsp;</p><p>Asset Type: Different assets react differently to Fibonacci levels, with some following the ratios more closely than others.&nbsp;</p><p><strong>4. Other Technical Indicators</strong></p><p>Trend Alignment: Fibonacci levels are most effective when applied in the direction of the overall market trend.&nbsp;</p><p>Volume and Confirmation: Combining Fibonacci levels with volume analysis and price action (e.g., price bouncing off a level with confirmation) can enhance their reliability.&nbsp;</p><p>Other Tools: Using Fibonacci levels in conjunction with moving averages, trend lines, and oscillators provides a more comprehensive view of the market and improves accuracy.&nbsp;</p>