14. Fibonacci retracements
No trend moves in a straight line. After a strong move up, price pulls back before the next push. The question every trader asks: how deep will the pullback go?
Fibonacci retracement levels give a few likely zones to watch.
In the year 1202, an Italian mathematician, Leonardo of Pisa – known as Fibonacci – wrote about a number series: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89… Each number is the sum of the two before it.
Divide any number by the next one (like 55 ÷ 89) and you get about 0.618. This "golden ratio" shows up in sunflowers, shells and architecture. Traders borrowed it for charts. Interestingly, Indian mathematicians like Pingala and Hemachandra described this same sequence centuries earlier, in the study of poetry and rhythm.
14.1 The key levels
After a move from a swing low to a swing high, the common retracement levels are:
- 23.6% – a shallow pullback in a very strong trend.
- 38.2% – a normal pullback in a strong trend.
- 50% – not a Fibonacci number, but widely watched. "Half back."
- 61.8% – a deep pullback. Often the last line for the trend.
If price falls much below 61.8% (and especially below 78.6%), the original move is in doubt.
14.2 How to draw them
- Find a clear swing low and a clear swing high (for an up-move).
- Use the Fibonacci tool on your charting platform – drag from the low to the high.
- The tool draws the levels automatically.
For a down-move, drag from the swing high to the swing low.
14.3 Try it
14.4 Use Fibonacci honestly
- Fibonacci shows where to watch, not where price will surely turn.
- It works best when a level lines up with something else – an old support, a moving average, a round number. This is called confluence.
- Look for a reaction at the level – a hammer, an engulfing candle – before acting.
Kai log har chart pe Fibonacci laga ke magic dhoondhte hain. It is not magic. It is a ruler. When the 61.8% level sits on old support and price shows a rejection candle there – that is when it gets interesting.
The move is ₹100. Half of it is ₹50. ₹300 − ₹50 = ₹250.
Confluence of several reasons at one price makes a zone more meaningful.
- Fibonacci retracements estimate how far a pullback may go: 23.6%, 38.2%, 50%, 61.8%.
- Draw from swing low to swing high for up-moves (high to low for down-moves).
- They show zones to watch, not guarantees. Look for confluence and a candle reaction.
- Ek line mein: Fibonacci jaadu nahi, ek ruler hai – jab woh kisi purane level se mile, tab dhyaan do.