Part of the move is handed back:a retracement, not a change of track.
A temporary price movement against the prevailing trend, often measured using Fibonacci levels.
Retracements differ from reversals in that the original trend is expected to resume.
In plain words
A retracement is a partial move back against a larger move, measured as a share of it. If a price rises by 200 pips and then gives back 100, it has retraced half of the rise.
See it move
Retraced is about half of Whole move (as in the lesson)
Why it matters
Chart readers often measure retracements with Fibonacci levels, a set of percentages of the earlier move; 38.2%, 50% and 61.8% are the ones most often drawn. These are conventions that many people watch, not natural limits on how far a price can come back.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A pair rises from 1.1000 to 1.1200 and then falls to 1.1100.
- 1Rise1.1200 − 1.1000 = 200 pips.
- 2Given back1.1200 − 1.1100 = 100 pips.
- 3Share retraced100 ÷ 200 = 0.5, which is 50%.
- 4For comparison, 38.2% of the rise is 200 × 0.382 = 76.4 pips, a fall to about 1.1124.
The fall to 1.1100 is a 50% retracement of the rise.
A common mistake
Calling a move a retracement assumes the earlier trend resumes. That is only known later: a move that goes back past the start of the earlier swing was a reversal, not a retracement.
Check yourself
Learn more
- Academy lessonFibonacci retracementHow Fibonacci retracement levels are derived and drawn, what each level is conventionally taken to mean, and how extensions and clusters build on them.
- ExplainerFibonacci extensions: how the levels are calculatedExtensions project a prior swing beyond its end using the same ratios as retracements. A worked EUR/USD example shows where each level comes from.
Educational information, not investment advice or a recommendation to trade.