Free Trading School · Level 9: Key Levels and Multiple Timeframes
Fibonacci retracements and extensions
Fibonacci retracements divide a completed move into ratios, most commonly 38.2%, 50% and 61.8%, to estimate where a pullback might end. Draw from the swing low to the swing high in an uptrend (or high to low in a downtrend) and the tool marks the levels.
Fibonacci levels on a pullback. The 50 to 61.8% zone is often called the "golden pocket".
There is no magic in the numbers. They work as often as they do because many traders watch them, and because a 40 to 60% pullback is simply a normal size for a healthy correction. They are most reliable where they line up with other support: an old resistance level, a moving average or a trendline.
Extensions (127.2%, 161.8%) project how far the next leg might go beyond the old high, useful for setting targets.
Treat Fibonacci levels as zones of interest. Look for confluence with other levels and a confirming candle.
Quick answers
Fibonacci retracements divide a completed move into ratios, most commonly 38.2%, 50% and 61.8%, to estimate where a pullback might end. Draw from the swing low to the swing high in an uptrend (or high to low in a downtrend) and the tool marks the levels.
Treat Fibonacci levels as zones of interest. Look for confluence with other levels and a confirming candle.
50 to 61.8%. The 50 to 61.8% retracement zone is a popular area for pullback entries.
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