Fibonacci retracement

Fibonacci retracement is one of the most widely used technical analysis tools in forex trading. Based on the mathematical sequence discovered by Leonardo Fibonacci, these Fibonacci levels help traders identify potential support and resistance zones where price may reverse or pause during a trend.

The golden ratio and Fibonacci sequence

The Fibonacci sequence (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89...) has a unique property: each number divided by the previous one approaches the golden ratio of 1.618. This ratio, along with its inverses and derivatives, appears throughout nature. The golden ratio forms the mathematical basis for all Fibonacci levels used in trading.

Key Fibonacci retracement levels

The primary Fibonacci retracement levels are:

• 23.6% — A shallow retracement, often seen in strong trending markets. Price may bounce here during aggressive momentum moves.
• 38.2% — A moderate retracement level, commonly respected in healthy trends. Many traders look for entries near this level.
• 50.0% — While not a true Fibonacci ratio, the 50% level is widely watched because markets frequently retrace half of a move before continuing.
• 61.8% — The most important Fibonacci level, derived directly from the golden ratio. Its users treat it as the last line of defense before a trend reversal.
• 78.6% — A deep retracement level. If price reaches here, the trend may be weakening.

How to draw Fibonacci retracement

How the tool is drawn decides where its levels fall:

• In an uptrend: Click the swing low and drag to the swing high. The retracement levels will project downward, showing potential support zones.
• In a downtrend: Click the swing high and drag to the swing low. The retracement levels will project upward, showing potential resistance zones.
• Use significant swing points visible on higher timeframes, which more traders are likely to have drawn from.
• Always identify clear, impulsive price moves to apply the tool — avoid choppy or sideways markets.

Fibonacci extensions

Fibonacci extension levels project beyond the initial move to identify potential profit targets. The most common extension levels are 127.2%, 161.8%, and 261.8%. Traders use these to set take-profit orders and gauge how far a trend might extend after a retracement completes.

Fibonacci clusters

When Fibonacci levels from different swing points converge at the same price zone, they create a Fibonacci cluster.

Combining Fibonacci with other tools

Practitioners usually combine Fibonacci retracement with candlestick patterns, moving averages, and support/resistance levels. The levels are a widely shared convention, which is part of why prices sometimes react near them; the evidence that they predict where price will turn is weak and disputed.

Revised 4 October 2026. Fibonacci levels were described as “reliable” and “accurate”; the lesson now attributes their significance to the traders who use them and says that the evidence that they predict where price will turn is weak and disputed.