Fibonacci retracement

To use the tool in an uptrend, anchor it from a significant swing low to a significant swing high. It then draws horizontal lines at the key ratios between them, marking where price might pause on its way back down before continuing up. In a downtrend you anchor high to low. The quality of your anchors makes or breaks the result — pick clear, obvious swing points.

Not all levels are equal. The 38.2%, 50%, and 61.8% levels are the heavyweights. The 50% isn't a true Fibonacci number but is included because markets so often retrace half a move. The 61.8% — the 'golden ratio' — is the level traders watch most closely as the last line of defence for a trend.

There's nothing mystical forcing price to respect 61.8%. These levels work largely as a self-fulfilling prophecy: a huge number of traders place buy orders and stops around the same Fibonacci levels, and that clustered activity creates real support and resistance where the math said it would be.

That insight changes how you use them. A Fibonacci level is most reliable when it overlaps independent evidence — a prior support zone, a moving average, a trendline. Alone it's just a line on a chart. Stacked with other structure, it becomes a genuine decision point that many participants are defending at once.

The practical play in a trend: wait for a pullback into the 50–61.8% zone, then look for a trigger — a bullish candle, an RSI bounce, a hold of the level — to enter with the trend. Your stop goes just beyond the 78.6% or the swing low, so if price blows through the zone you're out small and the trend thesis is invalidated cleanly.

This gives you a with-trend entry at a discount instead of chasing. Shallow retracements (to 38.2%) signal a very strong trend; deep ones (to 78.6%) warn the trend may be failing. The depth of the pullback is itself a clue about the trend's health.

Fibonacci also projects forward beyond the prior high using extension levels — 1.272, 1.618, 2.618 — which estimate where an impulse move might reach. Traders use these to set logical take-profit targets: the 1.618 extension is a common first target for a trending move.

Combine retracements and extensions and you have a full framework: enter on a retracement into confluence, target an extension level ahead. As always, treat these as reference zones to plan around, not precise prices that price is obligated to hit.