Fibonacci Retracement & Extension
Fibonacci tools are among the most popular analysis methods in trading. Based on the Fibonacci number sequence, these tools identify potential reversal levels, price targets, and areas of support/resistance. Many professional traders consider Fibonacci levels essential to their analysis.
Fibonacci Retracement
Fibonacci retracement measures how far price pulls back within a trend. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. The 61.8% level (the "golden ratio") is considered the most significant.
How to Draw Fibonacci Retracement
- 1Select the Fibonacci Retracement tool from the left sidebar
- 2In an uptrend: click the swing low first, then drag to the swing high
- 3In a downtrend: click the swing high first, then drag to the swing low
- 4The tool automatically plots all Fibonacci levels between the two points
- 5Watch for price reactions at the 38.2%, 50%, and 61.8% levels
Fibonacci Extension
While retracement shows pullback levels within a move, extension projects where price might go beyond the original move. Key extension levels are 127.2%, 161.8%, 200%, and 261.8%. Use extensions to set profit targets.
Fibonacci Confluence
When a Fibonacci level from one swing aligns with a Fibonacci level from another swing, it creates a "confluence zone" — an area of very high probability for price reaction. These zones are particularly powerful and watched by many traders.
Pro Tip
The 61.8% retracement is called the "golden ratio" and is the single most important Fibonacci level. If price pulls back to 61.8% and holds, it's often a strong signal that the original trend will continue.
Warning
Fibonacci levels are not magic — they're areas of interest, not guaranteed reversal points. Always combine Fibonacci analysis with other tools like support/resistance, candlestick patterns, and indicators for confirmation.
Key Takeaways
- Fibonacci retracement identifies potential pullback levels within trends
- Key levels: 23.6%, 38.2%, 50%, 61.8% (golden ratio), and 78.6%
- Draw from swing low to swing high (uptrend) or high to low (downtrend)
- Extensions project price targets beyond the original move
- Fibonacci confluence zones are the highest probability levels