Fibonacci Retracement

A Fibonacci retracement grid takes one impulse and marks the fractions of that impulse where a counter-move often gets watched. In an uptrend you draw from the swing low to the swing high, and the levels hang below the high. Traders did not discover that markets must turn at 61.8 percent. They inherited a set of ratios from the Fibonacci sequence, and those ratios are now widely watched, which is a weaker and more honest claim: a watched level can attract orders. Many pulls stop at a prior swing or a moving average that happens to sit near a ratio. The ratio did not cause the turn.

The tool is only as good as the swing you chose. Use an obvious impulse, the leg that a reasonable trader would agree is the move being corrected. Switching anchors until a level kisses the latest low is fitting, not analysis. A pullback that stalls at 38.2 percent is a shallow trend pullback. One that reaches 61.8 or 78.6 percent has given back most of the leg and the trend assumption is weaker. Beyond 100 percent the impulse is fully retraced and the grid you drew is no longer a retracement of an intact swing.

In an uptrend, a pullback into 38.2 to 61.8 percent that starts holding, with a higher low on a lower timeframe, is the bullish use. The level is the location. The turn is the candle, the reclaim of a minor swing, or the hold of a prior breakout. Buying the first touch of 61.8 percent, with the trend already broken on structure, is how the grid becomes a reason to fight a reversal.

In a downtrend, a rally into the same ratios of the decline is the bearish mirror. A 50 or 61.8 percent bounce into a falling average and a prior breakdown is a location for the trend to resume. A rally that reclaims the swing high has left the retracement story. Do not keep shorting "the Fib" after the impulse is gone.

Drawing the grid on every wiggle and then finding a ratio near every turn, which is easy when you have five lines. Also treating 61.8 as stronger than the actual swing high or low that sits next to it. Price structure outranks a ratio. And forgetting that 50 percent is in the tool because traders like midpoints, not because it appears in the Fibonacci sequence.

Retracements have no built-in invalidation except the far end of the swing. Markets trend through the whole grid. The tool does not include volume, time, or the higher-timeframe level that may sit between two ratios. Use it to organise a pullback you can already see, not to predict the pullback's depth in advance.