What Fibonacci retracement is
A retracement is a move against the current trend that does not reverse it. Price rises, falls back part of the way, then may continue. For a fuller explanation, see Pullbacks.
Fibonacci retracement is a drawing tool that splits a completed price swing into horizontal levels. A swing is a move from a clear low to a clear high, or from a high to a low. The levels mark how deep a pullback has gone as a fraction of that swing.
The fractions come from the Fibonacci sequence. Each number in it is the sum of the previous pair. Ratios between nearby numbers in the sequence settle close to the golden ratio and its powers, and charting software turns these ratios into percentage levels. The midpoint of the swing is also drawn by default, although it does not come from the sequence. Traders add it because markets often pause near the middle of a move.
The tool does not predict anything. It shows a ruler laid over a past move. Many traders watch the same levels, so price sometimes reacts near them. Just as often, it passes straight through.
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
The formula
For a swing from a low (A) to a high (B), each retracement level is:
Level = B − ratio × (B − A)
For a swing from a high down to a low, the levels are measured upward from the low:
Level = B + ratio × (A − B)
The start of the swing is the full retracement and the end of the swing is zero retracement. Everything in between is a partial pullback.
The tool below draws these levels for any swing you enter. It also shows extension levels beyond the swing.
Fill in the empty fields to see the result.
| Level | Price |
|---|---|
| 0% | 120 |
| 23.6% | 115.28 |
| 38.2% | 112.36 |
| 50% | 110 |
| 61.8% | 107.64 |
| 78.6% | 104.28 |
| 100% | 100 |
| 127.2% | 125.44 |
| 161.8% | 132.36 |
| 261.8% | 152.36 |
Up swing: retracement = high − range × ratio, extension = low + range × ratio (range = high − low); a down swing is mirrored. The levels depend on which swing you pick; price often ignores them.
A drawn example
The chart below is a sketch, not real prices. Price rises from swing low A to swing high B, then pulls back.
In this sketch, the pullback from B stops at C, between the midpoint and the deep level, and then bounces. The levels only describe where C sits relative to the swing A–B. They do not tell you whether price will go back above B or fall to A.
How to add it in MT4 and MT5
The steps are much the same in both MetaTrader platforms:
- Open the chart and choose the timeframe you want to analyse.
- In MT4, go to Insert → Fibonacci → Retracement. In MT5, go to Insert → Objects → Fibonacci → Fibonacci Retracement. Both platforms also have a Fibonacci button on the drawing toolbar.
- Click on the swing start, hold the mouse button, and drag to the swing end. In an up-swing, drag from low to high. In a down-swing, drag from high to low.
- Double-click the object and open its properties to change level values, colours and labels. The tab is called Fibo Levels in MT4 and Levels in MT5.
If you drag in the wrong direction, the level labels come out reversed. Check that the zero label sits at the end of the swing. Platform guides are on MetaTrader 4 and MetaTrader 5.
How to read the levels
- Shallow pullbacks that stop near the upper levels often come with strong momentum.
- Middle pullbacks around the midpoint and the golden-ratio area are the zone many traders watch most closely.
- Deep pullbacks near the lowest levels suggest the original move is weakening. A close beyond the swing start means that swing no longer describes the market.
A level counts for more when something else lines up with it. Examples are a support and resistance zone, a trendline, a moving average acting as dynamic support or a round number. Read the level together with the candlestick behaviour there. A clean rejection tells you more than a level that price simply touches.
Typical uses
- Measuring pullback depth within a trend identified by market structure.
- Planning risk, such as where a stop-loss would sit if price moves beyond a level. Position size then follows from the stop distance. See risk management and the calculators.
- Projecting targets beyond the swing with the related Fibonacci Extension tool.
- Structuring wave counts in Elliott Wave and ratio checks in harmonic patterns.
A "Fibonacci strategy" is a way of combining these levels with other evidence. It is not a rule that works on its own.
Choices for experienced traders
Swing selection. This is the main source of subjectivity. Different traders pick different highs and lows, so they get different levels. Some anchor on candle wicks and others on candle bodies (closes). Pick a method and apply it the same way every time. The ZigZag or Fractals indicators can make swing selection more mechanical. Keep in mind that ZigZag redraws its last leg, as explained in repainting indicators.
Timeframe. A swing on a higher timeframe usually carries more weight than a swing on a lower one. Overlapping levels from several timeframes form clusters. See multiple timeframes.
Level set. You can add or remove levels in the properties. Adding many levels makes it nearly certain that price touches one of them. That looks convincing afterwards but tells you little in advance.
Zones, not lines. Spreads, wicks and volatility mean a level works better as a band. The ATR helps you judge a sensible width for that band.
When Fibonacci misleads
- Sideways markets. In a range there is no clear swing, so the levels have nothing meaningful to measure. See Market trends.
- Hindsight fitting. After the fact, it is always possible to find a swing that makes a reaction look precise.
- News spikes. Data releases can push price through every level within seconds.
- Gaps and thin liquidity. Gaps after weekends and quiet sessions distort the swing, and with it every level.
- Moving anchors. If price makes a new high, the old drawing is outdated and needs redrawing.
- Self-fulfilment limits. Levels that many traders watch can attract stop orders, and price may sweep through them. See liquidity sweeps.
Leveraged forex and CFD trading can lose money fast. No drawing tool changes that, and any level can fail. Practise on a demo account before relying on any method.
Frequent questions
What are the standard Fibonacci retracement levels?
They are ratios derived from the Fibonacci sequence, plus the midpoint of the swing. MT4 and MT5 show their default values in the object's properties, and the tool on this page draws them for any swing you enter.
Which level is the most important?
None is reliable on its own. Traders often watch the midpoint and the golden-ratio area. A level matters more when it lines up with other support or resistance.
Should I use wicks or closes?
Either can work. Use the same method every time so your levels can be compared across charts.
How do I use Fibonacci in forex?
Draw it on a clear swing within a trend, treat the levels as zones, and look for other evidence at those zones. Plan your risk before acting on anything you see.
What is the difference between retracement and extension?
Retracement measures pullbacks inside a swing. Extension projects levels beyond the end of the swing.
Does Fibonacci retracement work?
It is a measuring method, not a forecast. Price reacts near its levels at times and ignores them at other times, especially in ranges and around news.