Fibonacci retracement

Fibonacci retracement levels are horizontal lines at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a price move, where traders look for a pullback to end and the trend to resume.

How it works

You draw the tool from the start to the end of an impulse: in an uptrend, from the low to the high. The platform then plots levels showing how much of the move price has given back during a pullback. The percentages come from the Fibonacci sequence, with 50% added by tradition.

The 50–61.8% zone gets the most attention: shallow pullbacks in a strong trend stop around 38.2%, deep ones reach 61.8–78.6%. Levels work better when they line up with horizontal support, a moving average or a demand zone. This overlap is called confluence.

There are also Fibonacci extensions (127.2%, 161.8%) used for profit targets beyond the previous high. Keep in mind that no market law forces price to stop at 61.8%; it is a popular convention, so treat the levels as zones, not exact lines.

Example with numbers

BTC rose from $50,000 to $60,000, a $10,000 move. The 38.2% retracement = $60,000 − $3,820 = $56,180, 50% = $55,000, 61.8% = $53,820. If $55,000 is also old resistance turned support, that zone is more interesting than the others.

Common mistake

The mistake is dragging the tool between random points until a level matches the price you want, then buying the line without confirmation. Draw Fibonacci from clear swing lows and highs, look for overlap with other levels and wait for price to react. Put your stop beyond the next level or the start of the move.

Questions and answers

What is Fibonacci retracement in simple terms?

It is a set of chart lines showing how much of a rise or fall price has given back in a pullback. Traders watch them for where the pullback might end.

Which Fibonacci level is most important?

The 50–61.8% zone is watched the most and is sometimes called the golden pocket. But the strongest level is the one that lines up with other support.

How do you draw Fibonacci correctly?

In an uptrend draw from the swing low to the swing high, in a downtrend from the high to the low. Use clear, confirmed turning points.

Fibonacci retracement

How it works

Questions and answers

Related terms

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