Fibonacci retracement levels are horizontal lines that indicate potential support and resistance levels based on the Fibonacci sequence. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.

The 61.8% level, known as the "golden ratio," is considered the most significant. Price often finds strong support or resistance at this level during retracements.

To use Fibonacci retracements, identify a significant swing high and swing low. In an uptrend, draw from the low to the high. In a downtrend, draw from the high to the low.

Traders use these levels to identify potential entry points during pullbacks. For example, in an uptrend, a trader might look to buy when price retraces to the 38.2% or 61.8% level.

Fibonacci levels work best when combined with other forms of technical analysis such as trendlines, candlestick patterns, and volume analysis. No single tool should be used in isolation for trading decisions.