Fibonacci Retracement Trading

Fibonacci retracements are one of the most powerful tools for predicting potential reversal levels.

The Fibonacci Sequence

Each number is the sum of the two preceding: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34...

The key ratios derived from this sequence:

• 23.6%
• 38.2%
• 50.0% (not Fibonacci but widely used)
• 61.8% - The Golden Ratio
• 78.6%

How to Draw Fibonacci Retracements

For Uptrend:

1. Find significant swing low
2. Find significant swing high
3. Draw from low to high

For Downtrend:

1. Find significant swing high
2. Find significant swing low
3. Draw from high to low

Key Levels to Watch

38.2% Retracement

• Strong trend = shallow pullback
• Good for aggressive entries

50% Retracement

• Most commonly watched level
• Psychological importance

61.8% Golden Ratio

• Deep but healthy pullback
• Often last line of defense for trend

Trading with Fibonacci

Entry Strategy:

1. Identify clear trend
2. Draw Fibonacci on recent swing
3. Wait for price to pull back to key level
4. Look for reversal candlestick pattern
5. Enter with stop beyond next Fib level

Confluence

Fibonacci works best when combined with:

• Support/resistance
• Moving averages
• Trendlines
• Round numbers

Common Mistakes

• Drawing on random swings
• Using every level
• Ignoring the overall trend
• Not waiting for confirmation