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Fibonacci retracement

Horizontal levels at 23.6%, 38.2%, 50%, 61.8%, and 78.6% of a prior move, used to estimate where a pullback might end.

Fibonacci retracement levels across one swingA rally from a swing low to a swing high with horizontal lines drawn at fixed percentages of that move, and a later pullback that turns around on the 61.8 per cent line.FIBONACCI RETRACEMENT OF ONE SWING0% swing high23.6%38.2%50%61.8%78.6%100% swing lowpullback holds hereIllustrative swing. The levels are fixed fractions of the move from low to high.
Fibonacci retracement levels. Take one move from a swing low to a swing high and mark off fixed fractions of it — 23.6, 38.2, 50, 61.8 and 78.6 per cent. Traders watch those lines to see how much of the move a pullback gives back; here it stalls at 61.8 per cent.

Draw from a swing low to a swing high and the tool plots percentages of that move. The 50% and 61.8% levels are the most watched. There is no proven mathematical reason prices respect them; they work partly because enough traders watch them and partly because pullbacks of about half a move are common anyway.

Use them as zones for confluence with support, a moving-average, or volume-profile, not as precise targets.

Example: a stock runs from $100 to $140. The 61.8% retracement is $140 - (0.618 x $40) = $115.28, and 50% is $120. A pullback into $115 to $120 that holds is the kind of setup swing traders watch.

Related: pullback, confluence, support, trend

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