Intelligence · Explainer · Technical analysis
The golden ratio in technical analysis: how Fibonacci tools are built
Retracements, extensions, fans and time zones all come from one number, 1.618. This is how each tool is constructed, how traders read it, and where its limits lie.
- 01The Fibonacci sequence converges on 1.618. That ratio and its inverse, 0.618, generate the levels drawn on charts.
- 02Retracement levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) mark how far a move has pulled back; extensions (127.2%, 161.8%, 261.8%) project beyond it.
- 03The levels are widely watched, which is part of why prices sometimes react near them. They are reference zones, not forecasts.
- 04Most practitioners treat a level as meaningful only when it coincides with other evidence, such as a moving average or a prior high or low.
3 min readAll Intelligence