Trader Lab · Technical analysis
FxPro. Japan
How to draw and use Fibonacci retracements
Fibonacci retracements mark how far a move might pull back, using ratios such as 38.2%, 50% and 61.8%. Because so many traders watch the same lines, those levels often attract buying or selling.
75%+ of retail investor accounts lose money trading CFDs.
The ratios
| Level | Typical use |
|---|---|
| 23.6% | Shallow pullbacks in strong trends |
| 38.2% | The standard pullback in a healthy trend |
| 50.0% | Half-way retracement; not a Fibonacci ratio but widely watched |
| 61.8% | Deep pullback; a break below suggests the trend may have changed |
How to draw it
In an uptrend, draw from the swing low where the move started to the swing high at the top. In a downtrend, from the high to the low. Use swing points anyone would agree on; on small, ambiguous waves the lines mean little.
Worked example: USDJPY
USDJPY rises from 148.00 to 152.00, a 4-yen move. The pullback levels are:
- 38.2%: 152.00 − 4.00 × 0.382 = about 150.47
- 50%: 150.00
- 61.8%: 152.00 − 4.00 × 0.618 = about 149.53
If price stalls at one of these and prints a reversal candle, that is a pullback buy candidate. Stops usually go just beyond the next level or below the swing low.
Look for overlap
Levels that line up with a horizontal level price has respected before, a moving average or a reversal candle carry more weight than a Fibonacci line on its own.
Drawing it in MT4 or MT5
- MT5: Insert, Objects, Fibonacci, Fibonacci Retracement. MT4: Insert, Fibonacci, Retracement.
- For an uptrend, click the low and drag to the high.
- Double-click the object to add or remove levels.
Why critics call it useless
With many lines on the chart, price will always seem to have stopped at one of them in hindsight, and the result depends on which swing you choose. Fix your rules for picking swings and only act where levels overlap with other evidence.
Questions
Do I draw from the low or the high?
From low to high to find pullbacks in an uptrend, from high to low for rallies in a downtrend. Drawing it backwards flips the levels.
Which level works best?
There is no fixed answer. 38.2% and 61.8% get the most attention, but where price stops depends on trend strength. Overlap with other evidence matters more than the ratio.
Which timeframe should I use?
Any works, but swings on the 1-hour chart or higher are watched by more traders and tend to behave better.