How to use it
- Identify the last clear swing: the low and high of the move you are measuring.
- Choose uptrend if price went from low to high (you look for a pullback down), downtrend otherwise.
- Read retracement levels as potential support (uptrend) or resistance (downtrend).
- Use extensions as potential targets beyond the swing.
The formula
Uptrend: Level = High − (High − Low) × ratio · Downtrend: Level = Low + (High − Low) × ratio
Swing from 100 to 120 (uptrend): 38.2% = 112.36, 50% = 110, 61.8% = 107.64. The 161.8% extension sits at 132.36.
Where the ratios come from
The 61.8% and 38.2% ratios derive from the Fibonacci sequence; 50% is not a Fibonacci number but is widely watched. Their usefulness comes largely from how many traders watch the same levels.
Use confluence, not single lines
A Fibonacci level matters most when it lines up with something else: prior support or resistance, a moving average, a pattern boundary or a round number.
Pick swings consistently
Results depend entirely on the swing you choose. Use obvious, recent swing points on the timeframe you trade, and do not redraw until the levels fit your bias.
Educational content — not financial advice.