What is Fibonacci retracement? The 38.2%, 50% and 61.8% levels explained
By SendPay Business · · 2 min read
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Fibonacci retracement is a way of marking levels on a chart where a price might pause after a big move. The levels are percentages of that move, several of them taken from the Fibonacci number sequence.
Where the ratios come from
In the Fibonacci sequence (1, 1, 2, 3, 5, 8, 13, 21 and so on) each number is the sum of the two before. Dividing a number by the next one tends towards 0.618, and by the one two places on towards 0.382. The 50% level is commonly added too, though it isn't a Fibonacci ratio.
How the levels are drawn
- Pick a swing low and a swing high.
- After a move up, each level = high − (high − low) × ratio, for 23.6%, 38.2%, 50%, 61.8% and 78.6%.
- After a move down, the levels are measured up from the low instead.
- Extension levels, such as 161.8%, project beyond the start of the move.
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The limits
The levels depend on which swing high and low are chosen, and different people pick different ones. There is no proven reason prices should respect these ratios; they are watched mainly because many traders watch them.
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Questions people ask
How do I work out Fibonacci levels?
Enter a swing high and low into the free calculator.
Fibonacci retracement calculator →Read next
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.