Fibonacci Retracement and Extension: A Practical Guide

Fibonacci tools draw a set of horizontal levels between two prices. Traders use them to estimate how far a pullback might go — and how far the next move might travel.

The ratios

The levels come from ratios associated with the Fibonacci sequence: 0.236, 0.382, 0.5, 0.618 and 0.786 for retracements, and 1.272, 1.414, 1.618 and 2.618 for extensions. The 0.5 level is not a Fibonacci ratio but is included because markets often retrace about half of a move.

There is no law of nature that makes price respect these levels. They work, when they work, partly because so many traders watch them.

Retracement: measuring a pullback

After a clear move up, draw the retracement from the swing low (the start of the move) to the swing high (its end). The tool shows where 38.2%, 50% and 61.8% of that move would be given back. A pullback that holds between 0.382 and 0.618 and then turns up is often seen as a healthy continuation of the trend. Price that falls through 0.786 suggests the move may be failing.

In OrderView choose Draw → Fibonacci retracement, tap the swing low, then the swing high. In the drawing's settings you can switch each level on or off, edit its value, extend the lines to the right, or calculate the levels on a log scale for large moves.

Extension: projecting a target

A Fibonacci extension uses three points: the start of a move (A), its end (B), and the end of the pullback (C). It projects the length of the A→B move from C, at 0.618, 1, 1.272, 1.618 and 2.618 times. The 1.0 level is a "measured move" — the next leg equal to the first.

In OrderView choose Draw → Fibonacci extension and tap A, B and C in order.

Choosing the right swing

The hardest part is picking the anchors. Use obvious swings that most traders would agree on, on the timeframe you are trading. Turn on the magnet in the drawing tools so points snap to the exact high or low of a candle.

Combining with other evidence

A Fibonacci level alone is a line on a chart. It becomes interesting when it lines up with something else: a previous support or resistance, a moving average, a round number, or a volume level such as a naked POC. Several reasons at one price are called confluence.

Common mistakes

• Redrawing the tool until price "respects" it after the fact.
• Anchoring on tiny swings inside noise.
• Treating every level as a place to enter — most are simply areas to watch.

Educational information only, not investment advice. Practise on a live chart in the web app.