What Fibonacci retracement is
After a strong move, price often pulls back part of the way — traders watch the 23.6%, 38.2%, 50%, 61.8% and 78.6% marks of that move. The ratios derive from the Fibonacci sequence (0.618 and friends). This tool turns a swing high and low into a price for each level.
How to use it
- Pick the direction. For an up swing you look at pullbacks downward from the high.
- Enter the swing high and low to get retracement levels (prices below the high) and extension levels (targets beyond the swing).
- A down swing mirrors this: pullbacks rise from the low, extensions point lower.
Formulas
- Up-swing retracement = high − (high − low) × ratio
- Up-swing extension = low + (high − low) × ratio (1.272, 1.618, …)
Caveat
Evidence that Fibonacci levels act as support or resistance is weak. Their value is that many traders watch the same lines — never use them as a standalone signal, and always pair them with a stop.
FAQ
Is 0.618 special?
It is called the golden ratio and widely used, but it carries no mathematical guarantee in markets.
How do I choose the high and low?
Use the obvious recent swing extremes. Which swing you pick can change the result a lot.
What are extension levels?
Prices used as targets when the move continues in the swing direction (1.272, 1.618, 2.618…).
Does it work for crypto and stocks?
Yes — it is the same arithmetic on any price.