Fibonacci trading applies a set of ratios derived from a famous number sequence to the swings on a chart. The idea is that after a strong move, price rarely retraces in a random way — pullbacks often stall near predictable percentages of the prior move before the trend resumes. Traders use these levels to plan entries, stops and targets.
Where the ratios come from
The Fibonacci sequence (1, 1, 2, 3, 5, 8, 13 …) produces ratios that recur throughout the tool. Dividing a number by the one after it approaches 0.618, giving the famous 61.8%; skipping one gives 38.2%; and 23.6% and 78.6% come from related divisions. The 50% level is not a true Fibonacci ratio at all, but it is included by convention because markets so often pull back to the midpoint of a move.
- 23.6% — a shallow pullback, common in strong trends.
- 38.2% — a moderate retracement.
- 50% — the midpoint; widely used but not a real Fibonacci number.
- 61.8% — the 'golden ratio', a deep and closely watched level.
- 78.6% — a very deep retracement, the last line before a full reversal.
Fibonacci levels mark where pullbacks tend to stall — a probabilistic guide, not a magic price that price must obey.
It is worth being honest from the start: Fibonacci is a probabilistic tool, not a guarantee. Levels work partly because so many traders watch them, creating self-fulfilling reactions. Throughout this course we treat Fibonacci as one input among many, always combined with structure and strict risk management.