How to calculate Fibonacci retracements
Range = Swing high − Swing low
Uptrend (pullback from the high): Level = High − Range × ratio
Downtrend (bounce from the low): Level = Low + Range × ratio
Ratios: 0.236, 0.382, 0.5, 0.618, 0.786
Extensions 1.272, 1.618, 2.618 lie beyond the swing's start
(below the low in an uptrend, above the high in a downtrend)
Worked example
- Price rallies from 100 to 200, a range of 100.
- 61.8% retracement = 200 − 100 × 0.618 = 138.20.
- 38.2% = 161.80; 50% = 150.00; 78.6% = 121.40.
How to interpret Fibonacci retracements
Shallow pullbacks (23.6–38.2%) suggest a strong trend; 50–61.8% is the classic “buy the dip” zone; beyond 78.6% the original move is in doubt. Fibonacci levels work best where they coincide with prior support/resistance, moving averages or pivot points. Use the level as an entry zone and plan the trade with the risk/reward calculator.
Limitations and common mistakes
- The result depends entirely on which swing you choose — use clear, significant highs and lows.
- 50% is not a Fibonacci ratio, but it's included because traders widely watch it.