Fibonacci retracement is a popular technical analysis tool used by forex traders to identify potential levels of support and resistance. It is based on the idea that prices tend to retrace a predictable portion of a move, after which they may continue to move in the same direction. The most common retracement levels used in forex trading are 38.2%, 50%, and 61.8%, which are derived from the Fibonacci sequence. Traders use these levels to identify potential entry and exit points for trades, as well as to set stop-loss and take-profit levels. While not foolproof, Fibonacci retracement can be a useful tool in a trader's toolbox.