Fibonacci retracement in trading
The Fibonacci retracement helps estimate how far a move might pull back before it continues. It does not predict anything, but it organises the zones where it is worth looking for entries.
How to draw it
- In an uptrend, from the swing low to the high of the impulse.
- In a downtrend, from the swing high to the low.
- Use clear, visible impulses; do not force the drawing.
Key levels
- 38.2%: shallow pullbacks in strong trends.
- 50%: a closely watched psychological level.
- 61.8%: the “golden zone” together with 50%.
- 78.6%: the last level before the impulse is invalidated.
Confluence
Fibonacci works best when it lines up with another argument: prior support, a moving average or a candlestick pattern. Several reasons in the same zone raise the odds of a bounce.
Frequently asked questions
Where do I place the stop with Fibonacci?
Usually below the 78.6% level or the origin of the impulse, depending on your risk tolerance.
What is a Fibonacci extension?
It projects targets beyond the impulse (127.2%, 161.8%) and is used to place take profit.