Fibonacci

Family VI · Charts & indicators

Not to be confused with fibonacci retracement, fibonacci pivot.

Fibonacci is a family of chart overlays that apply ratios from the Fibonacci sequence to price data. The sequence begins 0, 1, 1, 2, 3, 5, 8 and continues by adding the two preceding numbers; dividing one term by the next approaches 0.618, and dividing by the term two places ahead approaches 0.382. Traders anchor these ratios to a swing high and swing low, producing levels that are watched as possible turning points rather than as forecasts.

How the levels are constructed

A Fibonacci tool requires two anchor points: a swing low and a swing high, or the reverse. The vertical distance between them is the range. Retracement levels are placed at fixed fractions of that range, most commonly 23.6%, 38.2%, 50%, 61.8% and 78.6%. The 50% level is not a Fibonacci ratio but is included by convention because it marks the midpoint of the range.

Extension and projection tools use the same ratios beyond the range, for example 127.2%, 161.8% and 261.8%. The levels are drawn automatically once the anchors are set; the tool itself contains no predictive calculation beyond the arithmetic of the ratios.

Worked example

A trader anchors a Fibonacci retracement to a swing low of 100.00 and a swing high of 200.00. The range is 100.00 points, so each ratio is applied to that range and subtracted from the high to give a retracement level.

The 61.8% level is the one most often cited, but its relevance depends on whether price actually reacts there; the tool does not guarantee a reversal.

Use and limitations

Fibonacci levels are subjective because the anchors are chosen by the analyst. Different swing points produce different levels on the same chart. The ratios are also applied to time axes and to fan lines in some software, which adds further variation. No regulatory body standardises Fibonacci settings, and brokers may offer different default ratios or drawing tools.

Because the levels are widely watched, they can attract orders, but that is a matter of market behaviour rather than a property of the ratios themselves. A Fibonacci tool is a measuring device, not a signal generator.

Often confused with

fibonacci retracement

A Fibonacci retracement is one specific Fibonacci tool that measures pullbacks within an existing range, whereas the broader Fibonacci family also includes extensions, fans and time zones; the visible sign is that a retracement stays between the two anchor points, while extensions plot beyond them.

fibonacci pivot

A fibonacci pivot is a set of horizontal support and resistance levels calculated from the previous period's high, low and close, with the retracement ratios 23.6%, 38.2%, 50%, 61.8% and 100% applied to that range around a central pivot point.

See also

• forex technical analysis indicators
• price action
• fundamental analysis
• support and resistance
• technical analysis
• candlestick