Fibonacci retracement is a technical analysis tool that uses horizontal lines to indicate potential support and resistance levels. The lines are drawn at percentages based on the Fibonacci sequence (23.6%, 38.2%, 50%, 61.8%, 78.6%), measuring how much of a prior move has been retraced. Traders use these levels to identify entry points during pullbacks.
- Key levels: 38.2%, 50%, and 61.8%
- Draw from swing low to high (uptrend) or high to low (downtrend)
- Levels act as potential support/resistance during pullbacks
How Fibonacci Retracement Works
Fibonacci levels measure pullback depth:
Fibonacci Calculation:
Uptrend Example:
Swing Low: ₹100
Swing High: ₹200
Move: ₹100 (200 - 100)
Key Levels:
23.6% retracement: ₹200 - (100 × 0.236) = ₹176.40
38.2% retracement: ₹200 - (100 × 0.382) = ₹161.80
50.0% retracement: ₹200 - (100 × 0.500) = ₹150.00
61.8% retracement: ₹200 - (100 × 0.618) = ₹138.20
78.6% retracement: ₹200 - (100 × 0.786) = ₹121.40
These levels become potential support during pullback
Quick Reference: Fibonacci Levels
| Level | Significance | Typical Context |
|---|---|---|
| 23.6% | Shallow | Strong trends barely retrace |
| 38.2% | Common | Healthy pullback in strong trend |
| 50.0% | Key level | Not true Fibonacci but widely used |
| 61.8% | Golden ratio | Deep pullback, trend still valid |
| 78.6% | Deep | Trend weakening, reversal possible |
Example: Trading Fibonacci Pullback
Uptrend Retracement Trade:
| Phase | Price | Fibonacci | Action |
|---|---|---|---|
| Low | ₹500 | 0% | Start of move |
| High | ₹600 | 100% | Swing high |
| Pullback | ₹565 | 35% | Watching |
| Pullback | ₹538 | 62% | Near 61.8%, BUY zone |
| Entry | ₹540 | 60% | Enter with stop below 78.6% |
| Target | ₹620 | - | New high, exit |
Fibonacci retracement marks potential support and resistance at key percentages—38.2%, 50%, and 61.8% are most important. Draw from swing low to high to find support during uptrend pullbacks. Combine with other analysis for best results.
How to Use Fibonacci
Draw Correctly
- Uptrend: Low to high (support levels below current price)
- Downtrend: High to low (resistance levels above current price)
- Use clear swing points
Look for Confluence
- Fibonacci level + moving average = stronger
- Fibonacci level + prior support = stronger
- Multiple Fibonacci levels clustering = stronger
Trade the Bounce
Enter when price reaches Fibonacci level and shows reversal signs. Don’t blindly buy/sell at the level.
Fibonacci Extensions
For projecting targets beyond the swing high:
| Extension | Use |
|---|---|
| 127.2% | First target |
| 161.8% | Common target |
| 200% | Extended target |
| 261.8% | Major extension |
Common Mistakes
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Drawing from wrong points – Use clear, significant swing highs and lows.
-
Trading levels blindly – Wait for price action confirmation at the level.
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Ignoring the trend – Fibonacci works best with the trend, not against it.
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Over-reliance – Fibonacci is one tool, not a complete system.
How JournalPlus Tracks Fibonacci
JournalPlus logs Fibonacci level conditions at entry, helping you analyze whether Fibonacci-based entries improve your pullback trading results.
