The Ratios
Derived from the Fibonacci sequence, the key retracement levels are 23.6%, 38.2%, 50% (technically not Fibonacci but widely used), 61.8% and 78.6%.
How to Draw
- Identify a clear impulsive move
- Anchor the tool from the start of the move to the end
- Watch how price interacts with the retracement levels on the return leg
Where Traders Watch
- **38.2%** — shallow pullback, strong trend
- **50%** — psychologically important
- **61.8%** — "golden pocket", deep pullback but still valid trend
- **78.6%** — trend under threat if broken
Confluence Is Key
The best Fibonacci trades occur where a retracement level aligns with a horizontal support/resistance, a moving average or a trendline.
Extensions
Fib extensions (127.2%, 161.8%, 261.8%) project potential profit targets beyond the original move.
Key Takeaways
- Fibonacci is a *tool*, not a system.
- Use confluence to filter false signals.
- Manage risk with a defined stop beyond the level.