Fibonacci levels
Retracement and extension levels, how to draw them and how to combine them with other tools.
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Lessons
- 01What are Fibonacci retracement levels?Fibonacci retracement levels are lines drawn at fixed percentages of a price move to mark how deep a pullback has gone. The usual levels are 23.6%, 38.2%, 50%, 61.8% and 78.6%. The middle three get the most attention, but the evidence that price turns at them more than anywhere else is weak.
- 02How to draw Fibonacci retracements.In an uptrend, draw a Fibonacci retracement from the swing low to the swing high, so the levels sit below the high. In a downtrend, draw from the swing high to the swing low, so the levels sit above the low. Use the clear extremes of one completed move, wick to wick.
- 03Combining Fibonacci with support and resistance.Combining Fibonacci with support and resistance means checking whether a retracement level sits on a price the market has reacted to before, such as an old high. When the two line up within a few pips, traders call it a confluence zone and watch it more closely. Price can still break straight through a zone.
- 04Combining Fibonacci with trend lines.A Fibonacci retracement offers several levels where a pullback might stop. A trend line through earlier swing lows, or swing highs in a downtrend, narrows the choice: watch the level the line crosses around the time price returns to it. That meeting point is a zone of interest, and price can still break through it.
- 05Combining Fibonacci with candlestick patterns.Combining Fibonacci with candlesticks means waiting for a reversal candle, such as a hammer or an engulfing pattern, to close at a retracement level before you enter. The level shows where a pullback might stop, and the candle shows buyers or sellers stepping in. The cost is a later entry, and the signal still fails often.
- 06Fibonacci extensions for profit targets.A Fibonacci extension projects how far a trend might run after a pullback. You measure the first swing, multiply it by ratios such as 61.8%, 100% and 161.8%, and add each result to the low of the pullback. Traders use the levels as possible take-profit targets, with no guarantee that price reaches them.
- 07Placing stops with Fibonacci levels.A Fibonacci stop goes beyond the next retracement level past your entry, plus a small buffer for the spread and noise. Buy at 50% and the stop sits under 61.8%; sell at 50% and it sits above 61.8%. Then cut the lot size so the wider stop still risks only the money you planned.
- 08Fibonacci cheat sheet.Fibonacci retracement levels are 23.6%, 38.2%, 50%, 61.8% and 78.6% of the last swing, drawn from swing low to swing high in an uptrend. Extensions such as 127.2% and 161.8% project targets. A single level is weak evidence, so look for confluence, and stops usually sit beyond the level or the swing.