Forex Fibonacci

Fibonacci retracements are horizontal levels that show where a pullback inside a trend might stop. Fibonacci extensions show where the next move might go. They are among the most widely used tools in forex.

The Fibonacci Sequence and Ratios

The Fibonacci sequence starts with 0 and 1, and each new number is the sum of the two before it:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233 …

Traders do not use the numbers themselves. They use the ratios between them:

Ratio	How it is found	Example
61.8%	A number ÷ the next number	89 ÷ 144 = 0.618
38.2%	A number ÷ the number two places later	55 ÷ 144 = 0.382
23.6%	A number ÷ the number three places later	34 ÷ 144 = 0.236
78.6%	Square root of 0.618	√0.618 = 0.786
50%	Not a Fibonacci ratio — included because halfway pullbacks are common	0.500
161.8%	A number ÷ the number before it	144 ÷ 89 = 1.618
127.2%	Square root of 1.618	√1.618 = 1.272

Note: There is no proven law of nature that makes currencies obey these ratios. Fibonacci works mainly because so many traders watch the same levels and place orders around them.

Retracement Levels

A retracement is a temporary move against the trend. The Fibonacci tool takes a completed swing (low to high, or high to low) and marks the levels where a pullback may end:

Level	What it usually means
23.6%	Very shallow pullback — a very strong trend
38.2%	Shallow pullback — healthy, strong trend
50%	Halfway — a common, normal pullback
61.8%	Deep pullback — the "golden ratio"; very popular entry level
78.6%	Very deep — the trend is in doubt; last line of defence

Retracement level (uptrend) = High − (High − Low) × Ratio

Retracement level (downtrend) = Low + (High − Low) × Ratio

Drawing Fibonacci on an Up Swing

Find a clear swing low and the swing high that followed it.
Select the Fibonacci retracement tool on your platform.
Click the swing low first, then drag to the swing high.
The levels appear between the two points, measured down from the high.

EUR/USD rallies 200 pips from 1.0800 to 1.1000, pulls back to 1.0876 (the 61.8% level) and resumes the uptrend.

Example

Swing low 1.0800, swing high 1.1000. Range = 200 pips.

23.6%: 1.1000 − (0.0200 × 0.236) = 1.1000 − 0.00472 = 1.09528 ≈ 1.0953
38.2%: 1.1000 − (0.0200 × 0.382) = 1.1000 − 0.00764 = 1.09236 ≈ 1.0924
50.0%: 1.1000 − (0.0200 × 0.500) = 1.1000 − 0.01000 = 1.0900
61.8%: 1.1000 − (0.0200 × 0.618) = 1.1000 − 0.01236 = 1.08764 ≈ 1.0876
78.6%: 1.1000 − (0.0200 × 0.786) = 1.1000 − 0.01572 = 1.08428 ≈ 1.0843

Drawing Fibonacci on a Down Swing

In a downtrend, do the opposite: click the swing high first, then drag to the swing low. The levels are measured up from the low.

GBP/USD drops from 1.2800 to 1.2600, bounces to the 50% level at 1.2700, then falls to the 127.2% extension at 1.2546.

Example

Swing high 1.2800, swing low 1.2600. Range = 200 pips.

38.2%: 1.2600 + 0.00764 = 1.26764 ≈ 1.2676
50.0%: 1.2600 + 0.01000 = 1.2700
61.8%: 1.2600 + 0.01236 = 1.27236 ≈ 1.2724

A trader looking to sell the bounce watches the zone from 1.2700 to 1.2724.

Extensions: Where the Next Move Might Go

Extensions project levels beyond the original swing. Traders use them as profit targets once the trend resumes.

Extension (uptrend) = Low + (High − Low) × 1.272 or 1.618

Extension (downtrend) = High − (High − Low) × 1.272 or 1.618

Example

Up swing: Low 1.0800, High 1.1000, Range 0.0200
127.2%: 1.0800 + (0.0200 × 1.272) = 1.0800 + 0.02544 = 1.10544 ≈ 1.1054
161.8%: 1.0800 + (0.0200 × 1.618) = 1.0800 + 0.03236 = 1.11236 ≈ 1.1124

Down swing: High 1.2800, Low 1.2600, Range 0.0200
127.2%: 1.2800 − 0.02544 = 1.25456 ≈ 1.2546
161.8%: 1.2800 − 0.03236 = 1.24764 ≈ 1.2476

Tip: A practical plan is to take partial profit at the 127.2% extension and move your stop to break-even, then let the rest run toward 161.8%.

Fibonacci Calculator

Enter a swing high, a swing low and the trend direction. The calculator shows every retracement level plus the 127.2% and 161.8% extensions.

The Golden Zone

The area between the 50% and 61.8% levels is often called the golden zone. Many trend traders look for entries here because the pullback is deep enough to offer a good price, but not so deep that the trend is broken.

Example: Golden-zone trade plan

EUR/USD swing 1.0800 → 1.1000. Golden zone = 1.0876 to 1.0900.

Buy limit       = 1.0885 (inside the golden zone)
Stop loss       = 1.0835 (below 78.6% at 1.0843)
Risk            = 50 pips
Target 1 (high) = 1.1000  →  115 pips  =  2.3R
Target 2 (127.2%) = 1.1054  →  169 pips  ≈  3.4R

Confluence: When Levels Line Up

A Fibonacci level on its own is just a line. It becomes much more interesting when it lines up with other tools. This is called confluence.

A previous support or resistance level (especially a flipped one).
A trendline or channel line.
A round number such as 1.0900 (in our example, the 50% level).
A key moving average, such as the 50 or 200 EMA.
A reversal candlestick pattern forming at the level.

Warning: With five retracement levels, price will almost always be "near" one of them. Do not force trades just because a level was touched. Wait for confluence and a confirmation signal, and accept that some pullbacks go straight through 78.6% and reverse the trend.

Test Yourself With Exercises

In an uptrend, where do you start drawing the Fibonacci retracement tool?

At the swing high, dragging to the swing low
At the swing low, dragging to the swing high
At the current price

Up swing: click the low first, then the high.

USD/JPY rallies from 148.00 to 150.00. Where is the 50% retracement?

148.50
149.50
149.00
149.24

Range = 2.00. Halfway = 150.00 − 1.00 = 149.00.

EUR/USD swing low 1.0800, swing high 1.1000. Where is the 61.8% retracement (to 4 decimals)?

1.0876
1.0924
1.0843

1.1000 − (0.0200 × 0.618) = 1.1000 − 0.01236 = 1.0876.

Which two levels form the "golden zone"?

23.6% and 38.2%
78.6% and 100%
127.2% and 161.8%
50% and 61.8%

The golden zone is between 50% and 61.8%.

Which ratio is NOT derived from the Fibonacci sequence, but is still on the tool?

61.8%
50%
38.2%

50% is not a Fibonacci ratio. It is included because halfway pullbacks are common.