What Are Fibonacci Retracements and Fibonacci Ratios?


For instance, a fib retracement levelr notices that after significant momentum, a stock has declined 38.2%. As the stock begins to face an upward trend, they decide to enter the trade. Because the stock reached a Fibonacci level, it is deemed a good time to buy, with the trader speculating that the stock will then retrace, or recover, its recent losses. Generally, traders prefer to be on the safe side and enter the trade when the price has already bounced from one of the Fibonacci levels.

Fibonacci Arcs provide support and resistance levels based on both price and time. They are half circles that extend out from a line connecting a high and low. Fibonacci levels also arise in other ways within technical analysis. For example, they are prevalent in Gartley patterns and Elliott Wave theory.

How to Customize the Fibonacci Retracement and Extension Levels?

But some traders choose an aggressive style of trading and don’t wait for the price to bounce off before entering a trade. In this case, Fibonacci retracement levels can also be used to place a Stop Loss order as a safety measure. We use Fibonacci retracement levels, support/resistance levels, VAL, VAH, POC, marginal levels, unfinished auction levels and the day’s highs and lows. You can find any of these instruments and many variants of their creative combining in ATAS. If a market has fallen, then Fibonacci fans will apply the retracements to bounce back up. Let’s take an example of a market that has dropped 100 points.


You may close the last part at the 0.0 level to book your profit completely. Fibonacci followers provide arguments that the market is a natural phenomenon. Let’s have a look what advantages a trader gets when he combines footprint and Fibonacci retracement levels. DOGE Gold futures as an example in this article, but you can, as well, apply Fibonacci retracement levels in any other market with any timeframe. Not everyone is a fan of the Fibonacci approach to market analysis.

Indicator Comparison

They are used in https://www.beaxy.com/ analysis to predict future movements by identifying areas that will bring balance to an asset’s price. Traders believe the Fibonacci series has its application in stock charts as it identified potential retracement levels. I would now define the move of 109 (380 – 489) as the Fibonacci upmove.

How do you add Fibonacci retracement levels to TradingView?

Most trading and charting software will allow you to add Fibonacci retracements, but they may put the tool in slightly different places. In general, this tool is located next to other “drawing” tools that allow you to mark up your chart. If you’re using TradingView, you can also use the keyboard shortcut alt+f (option+f on a Mac).

In the event that you’d like to eliminate certain levels, simply set the value for these lines to zero. Different traders use different ratios; however, the most common Fibonacci ratios include 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Ross Cameron’s experience with trading is not typical, nor is the experience of traders featured in testimonials. Becoming an experienced trader takes hard work, dedication and a significant amount of time. When you draw Fibonacci retracement lines, you will measure the peak to trough of the move that you are targeting. The difference between the high and the low is then multiplied by 61.8% and 38.2%.

Violet levels are built by a 4-hour chart where points 2, 3 and 4 connect projection levels. We marked the key level of 61.8, from which the price reversed, with point 5. We marked Fibonacci zones, where several Fibonacci retracement levels are near each other, with rectangles. Such levels are of special interest to traders, because the price slows down here and reverses. The Fibonacci retracement method uses a set of key numbers called Fibonacci ratios to identify the support and resistance levels of an asset/stock/cryptocurrency. A Fibonacci fan is a charting technique using trendlines keyed to Fibonacci retracement levels to identify key levels of support and resistance.

For traders who had bought at the bottom – indicated by the bullish MACD signal line crossover and rise in RSI above 30 – selling at the top of the retracement is desired. While resistance is encountered at the 23.8% retracement level and supported by an RSI above 70, this reversal is not supported by the MACD and fails. Keep in mind that these retracement levels are not hard reversal points.

How to use Fibonacci retracements in trading

Fibonacci retracements are the most widely used of all the Fibonacci trading tools. That is partly because of their relative simplicity and partly due to their applicability to almost any trading instrument. They can be used to draw support lines, identify resistance levels, place stop-loss orders, and set target prices. Fibonacci ratios can even act as a primary mechanism in a countertrend trading strategy.

What does a 23.6 retracement mean?

The 23.6% Retracement – This is the first level. If prices retreat to this level and bounce, it is more likely for the underlying to trend than it is to reverse. If prices break this level then the underlying trend may consolidate around that level or reverse course altogether but a consolidation is more likely.

These ratios are derived by dividing the number in the Fibonacci sequence by the number immediately following it. To give you a better idea, a ratio of 34 divided by 55 is approximately 0.618, which is the basis for the 61.8% Fibonacci retracement level. This two-line indicator can help identify overbought and oversold levels. The strategy looks for key signals from the stochastic indicator when the price touches an important Fibonacci level. The two signals together indicate an opportunity to open a position. JumpstartTrading.com does not track the typical results of past or current customers.

Fibonacci retracement lines can be created when you divide the vertical distance between the high and low points by the key Fibonacci ratios. Horizontal lines are drawn on the trading chart​​ at the 23.6%, 38.2% and 61.8% retracement levels. Often a security will retrace by around 50% before continuing its original trend. Support and resistance levels – they represent price levels at which to be alert rather than hard buy and sell signals. It is important to use additional indicators, in particular MACD, to identify when support or resistance is actually being encountered and a reversal is likely.

technical analysis

When you start developing and backtesting your strategies like this you’re going to find much more success because you can find out what’s actually profitable. In the example below I’m going to use TD Ameritrade’s Thinkorswim platform because you can get a free demo account that has everything you need to do some testing on this strategy. The CD leg is just a 100% fib extension of the AB leg from point C.

These fib retracement level will become your target resistance as the price is rebounding or support during a correction. Fibonacci retracement analysis can be used to confirm an entry-level, target a take profit as well as determine your stop loss level. Some of the criticism surrounding the reliability of Fibonacci levels is no doubt related to lack of technique.


The retracement levels are a powerful tool that can be applied to all timeframes, including day trading​ and long-term investing. Fibonacci numbers also play a crucial role in the Elliott Wave​ principle, a technical analysis tool used to identify market cycles. The tool can be used across many different asset classes, such as foreign exchange, shares, commodities and indices. A Fibonacci retracement is a technical indicator used to identify support and resistance levels in a time series of prices or index levels.


However, traders often use it because of the tendency of asset prices to continue in a particular direction after a 50% retracement. For unknown reasons, these Fibonacci ratios seem to play a role in the stock market, just as they do in nature. Technical traders attempt to use them to determine critical points where an asset’s price momentum is likely to reverse. The best brokers for day traders can further aid investors trying to predict stock prices via Fibonacci retracements. As one of the most common technical trading strategies, a trader could use a Fibonacci retracement level to indicate where they would enter a trade.