Fibonacci Retracements

Trends move in legs: impulse, pullback, continuation. The Fibonacci retracement measures the pullback.

A trend is a staircase: a strong push, a partial giveback, another push. The retracement tool measures the giveback.

The strong push is the impulse leg: a directional move that leaves an area quickly and does not break its own swing structure on the way. The partial giveback is the pullback, also called the retracement. If the trend is healthy, the pullback ends somewhere above the old low and price resolves into a continuation to a new high.

The Fibonacci retracement marks how much of the leg price has given back, as fractions of the leg: 0.382, 0.5, 0.618, 0.786. It does not predict where the pullback ends. It names the candidate levels so you can plan around each one in advance.

Anchor one impulse leg, wick to wick. Swing low to swing high, on the extremes, then wait for the pullback.

The levels are only as accurate as the anchors. The rule: one impulse leg, swing low to swing high, on the wicks.

1. Pick ONE clean impulse leg. A single directional move from a clear swing low to a clear swing high. Not a whole trend, not two legs stitched together, not a choppy range.
2. Set anchor 1 on the swing low, on the wick. The extreme low traded. Wicks are real trades at real prices; the tool measures the full range of the leg, so it starts at the true extreme.
3. Set anchor 2 on the swing high, on the wick. Same logic at the top. Body-to-body anchors shrink the leg and shift every level off its true price.
4. Then wait. The levels print between 0.0 (the high) and 1.0 (the low). You do nothing until price pulls back into them. The fib is a map for the pullback, not an entry signal.

0.382 is the first reaction. The 0.618-0.786 pocket is where reversals cluster. How to read each level on the ladder.

The tool prints a ladder of levels, and they are not equals. Two do the heavy lifting: 0.382 as the first reaction, and the 0.618-0.786 golden pocket as the deep discount where reversals cluster.

• 0.382: the shallow first reaction. In a very strong trend, price may only dip this far. But it is also the first obvious dip, which makes it crowded, early, and the easiest level to front-run.
• 0.5: the halfway point. Not technically a Fibonacci ratio at all, just the psychological "half off" price that everyone watches anyway.
• 0.618-0.786: the golden pocket. The deep discount zone where impulsive trends most often end their pullbacks. Treat it as a zone, not a line: reversals form inside it, not at one exact tick.

Deep pullbacks reverse because the crowd's stops sit in the pocket. The sweep that collects them refuels the trend.

A deep retracement is not the trend losing strength. Very often it is the trend collecting the resting orders it needs to continue.

The sequence on the way down: the first dip tags 0.382 and early longs buy it, with stops under the nearest low. Price grinds lower to the 0.5, more longs buy the halfway price, and their stops stack under the pullback lows too. By the time price approaches the pocket, a dense cluster of stop-loss orders sits just below the obvious levels.

Stops are liquidity: resting orders that big players can fill against. Institutions building a position in the trend's direction need sellers, and a sweep through that stop cluster creates sellers on demand. So price is pushed into the pocket, the stops fire, size gets filled, and the trend resumes. The late longs were not wrong about direction. They were early, and their exits paid for someone else's entry.

Trade the fib levels that land on prior structure. Two independent reasons at one price beat the ratio alone.

A fib level by itself is a suspicion. A fib level that lands on prior structure is a location: a price where two independent reasons to trade stack on top of each other.

Structure means places where the market already did business: prior range highs or lows, an old swing point, the edge of the trend zone (a trend line thickened into a narrow band), a higher-timeframe level, a high-volume shelf. When the 0.618 of your impulse leg lands on the highs of the range that launched it, that price has a reason to exist beyond the ratio. Those are the fibs worth planning around.

Enter on the sweep and reclaim, not on the level touch. The fib picks the location; the reaction gives the trade.

The retracement tool tells you where a pullback might end. It says nothing about whether it will, or when. The level is the location; the trade still needs a trigger.

The trigger is a reaction at the level: a sweep wick through it, then a strong close back above the 0.618. No reaction, no trade, no matter how good the level looked in advance. The invalidation is fixed: a trade below the 1.0 ends the leg, and the setup with it. There is nothing to average down into.