Fibonacci retracement is a tool that draws horizontal levels on a chart at set percentages of a price move, commonly 23.6%, 38.2%, 50%, 61.8% and 78.6%. Traders use these levels to estimate where a pullback might find support or resistance.
You draw it from the start to the end of a clear swing. In an uptrend, you drag from the swing low to the swing high, and the tool marks levels inside that range. The percentages come from ratios in the Fibonacci number sequence, though 50% is not a true Fibonacci ratio and is included because traders watch it anyway.
A hypothetical example: a stock rises from ₹400 to ₹500. The 38.2% retracement is around ₹462, the 50% is ₹450 and the 61.8% is around ₹438. If the stock pulls back and holds near ₹450, forming a bullish candle there, a trader might see that as an entry with a stop below ₹438.
Part of the reason it works is self-fulfilling: many traders watch the same levels. That is also its weakness. Different people pick different swing points and get different levels.
The biggest beginner mistake is drawing it on random, unclear swings. Use it only after a clean, obvious move, and look for agreement with other support, such as a moving average or an old breakout level. We practise drawing it consistently in our Technical Analysis course.