Fibonacci retracement

The idea in plain words

After a strong move, the price usually gives back part of it before continuing. Many traders watch for the pullback to stop at a Fibonacci ratio of the move, and because so many watch, these levels can work as self-fulfilling support and resistance.

How it is calculated

Click the start of the move and then the end. The tool divides the move by the ratios; 0% is at the end of the move and 100% at its start.

Level = end − (end − start) × ratio
Ratios: 0, 23.6%, 38.2%, 50%, 61.8%, 78.6%, 100%, 161.8%, 261.8%, 423.6%
61.8% ≈ 1 ÷ 1.618 (the golden ratio); 38.2% = 1 − 61.8%

How to use it

• In an uptrend, draw from the swing low to the swing high and look for the pullback to hold at 38.2%–61.8%.
• Combine with other support (a moving average, an old high) for stronger zones.
• 161.8% and beyond serve as targets if the move continues past its start.

Drawing conclusions

• Shallow pullbacks (23.6%–38.2%) suggest a strong trend; deep ones (78.6%) a weaker one.

Watch out for

• With many levels, the price will almost always be near one: look for agreement with other evidence.
• Use clear swing points; the result depends on them.

A little history

The ratios come from the sequence described by Leonardo of Pisa (Fibonacci) in "Liber Abaci" in 1202 (1, 1, 2, 3, 5, 8, 13…). Their use in markets spread in the 20th century, notably through Elliott wave theory.