Fibonacci Retracement is a popular tool that helps traders identify potential pullback zones within a trend. Based on the famous Fibonacci sequence, these levels act as “hidden” support and resistance areas where price often reacts.
This guide will show you how to draw and use Fibonacci retracements effectively to improve your trade entries, exits, and stop placement.
What is Fibonacci Retracement?
Fibonacci Retracement uses key percentage levels derived from the Fibonacci sequence to predict how far a price might pull back before continuing its trend.
The Most Common Fibonacci Levels:
- 23.6%
- 38.2%
- 50% (not an official Fibonacci number but widely used)
- 61.8% (the “Golden Ratio”)
- 78.6%
These levels act as potential areas where price may pause, reverse, or bounce.
How to Draw Fibonacci Retracement
- In an **uptrend**: Draw from the swing low to swing high.
- In a **downtrend**: Draw from the swing high to swing low.
How to Use Fibonacci Levels
1. Identify Pullback Zones
Look for price to retrace to key levels like 38.2%, 50%, or 61.8% before continuing in the trend direction.
2. Combine with Support & Resistance
If a Fibonacci level aligns with a known S&R zone, it becomes a stronger potential reversal point.
3. Use for Stop Loss and Take Profit Placement
Place stops just beyond key levels, and use extensions for profit targets.
Best Practices
- Always use Fibonacci **within a trending market** — it’s ineffective in choppy, sideways conditions.
- Combine Fibonacci levels with indicators like RSI or MACD for momentum confirmation.
- Don’t rely on Fibonacci alone — treat levels as zones of interest, not guaranteed reversal points.
Example: Fibonacci + RSI Strategy
Look for price to retrace to the 61.8% level while RSI shows oversold conditions for a potential long entry in an uptrend.
How LogicINV AI Enhances Fibonacci Trading
LogicINV AI boosts Fibonacci strategies by:
- Automatically detecting valid swing highs and lows to draw accurate retracements
- Alerting when price approaches key confluence zones (Fibonacci + S&R + momentum)
- Filtering out low-probability retracement setups in weak trends
Summary
- Fibonacci retracement helps predict where pullbacks may end within a trend.
- Focus on key levels like 38.2%, 50%, and 61.8% for potential entries.
- Always combine with market context, and let AI highlight the best setups.
➡️ Next Up: Avoid Fibonacci Errors That Can Blow Up Your Trades (Module 3.3E)
Trade pullbacks with precision. Use LogicINV AI to spot high-probability Fibonacci setups. Start your free trial today!
