How the Fibonacci levels are calculated
Uptrend: Retracement = High − (High − Low) × level · Extension = Low + (High − Low) × level
In a downtrend the signs flip: retracements are measured up from the low, and extensions down from the high. The levels themselves are fixed ratios: 23.6%, 38.2%, 50%, 61.8% and 78.6% for retracements, and 127.2%, 141.4%, 161.8%, 200% and 261.8% for extensions. 50% isn't a Fibonacci ratio, but nearly every trader watches it, so it's included.
Calculators don't all measure extensions the same way. This one measures from the start of the swing, so 100% is the swing's end and, in the example below, 161.8% is 4,406.52. Some calculators add the percentage to the swing high instead, which puts their 161.8% at 4,546.52. Check which convention your charting tool uses before comparing levels.
An example on gold
XAUUSD rallies from 4,180.00 to 4,320.00, a range of 140.00. The retracement levels a buyer would watch on the way back down:
| Level | Price |
|---|---|
| 0% | 4,320.00 |
| 23.6% | 4,286.96 |
| 38.2% | 4,266.52 |
| 50% | 4,250.00 |
| 61.8% | 4,233.48 |
| 78.6% | 4,209.96 |
| 100% | 4,180.00 |
| 127.2% extension | 4,358.08 |
| 141.4% extension | 4,377.96 |
| 161.8% extension | 4,406.52 |
| 200% extension | 4,460.00 |
| 261.8% extension | 4,546.52 |
If the pullback ends at the 61.8% level, 4,233.48, enter that as the pullback point and the targets are projected from there instead: 100% at 4,373.48 and 161.8% at 4,460.00. Traders call this an ABC projection.
How traders use Fibonacci retracements
- Pick a clear swing. The high and low should be obvious on the chart you trade, not the biggest move you can find.
- Watch the 38.2% to 61.8% zone. It's the zone traders watch most closely for a pullback to pause; on its own a level isn't a reason to enter.
- Look for agreement. A Fibonacci level that lines up with an old support or resistance, a round number or a pivot point carries more weight.
- Plan the stop. A common approach is a stop beyond the next level, with the trade sized from that stop using the lot size calculator.
- Extensions as targets. Many traders use 127.2% and 161.8% as first and second targets; check the reward against the risk with the risk reward calculator.
Fibonacci levels aren't magic
When price does react near these levels, part of the reason may be that so many traders watch them. Plenty of pullbacks go straight through 61.8% and keep going. Treat the levels as places to look for a reason to trade, and decide your risk before the trade, not after.