Trading glossary

What is fibonacci retracement?

Fibonacci retracement levels mark common percentages of a prior move, such as 38.2%, 50% and 61.8%, where traders watch for a pullback to end.

The tool is drawn from a swing low to a swing high (or the reverse) and marks levels at set percentages of that move. The usual levels are 23.6%, 38.2%, 50%, 61.8% and 78.6%. The 50% level is not a Fibonacci ratio but is included by convention.

The levels are reference points, not predictions. They are most useful where they line up with another level, such as old support or resistance.

How traders use it

Draw from a clear swing to a clear swing on the timeframe you are analysing.
Look for overlap with other levels rather than trading a Fibonacci level alone.
Treat a close beyond the 78.6% level as a sign the move is more than a pullback.

Example

Gold rallies from 2,200 to 2,400, a 200-dollar move. The 38.2% retracement sits at 2,323.60, the 50% at 2,300 and the 61.8% at 2,276.40. If 2,300 is also old resistance, that level has confluence.

Frequently asked questions

Which Fibonacci level is most important?

The 61.8% level is the most watched, with 38.2% and 50% close behind. None is reliable on its own.

What about Fibonacci extensions?

Extensions such as 127.2% and 161.8% project beyond the move and are used as possible targets.

Educational content only, not financial advice. Chart patterns describe probabilities, not certainties, and every pattern can fail. See our disclaimer.