Glossary · Indicators

Fibonacci retracement

A drawing tool marking 23.6%, 38.2%, 50%, 61.8% and 78.6% of a price swing, used to anticipate where pullbacks may pause.

By Sky Trade editorial teamUpdated November 5, 2026

Fibonacci retracement takes a completed swing — from a low to a high, or the reverse — and divides it at ratios derived from the Fibonacci sequence: 23.6%, 38.2%, 61.8% and 78.6%, plus 50%, which isn't a Fibonacci ratio but is traditionally included. During a pullback, traders watch these levels as places where the move might pause or reverse.

Why might it work at all? Mostly because many traders draw the same levels, and because pullbacks of roughly a third to two-thirds of a move are common in any trending market. The ratios have no proven special power over prices.

The biggest practical problem is subjectivity. Which swing high and low? Wicks or closes? Change the anchor points and every level moves. With five levels on the screen, price is almost always near one of them, so a bounce at 61.8% is easy to celebrate afterwards and hard to trade beforehand.

Fibonacci levels are more useful when they coincide with something else — a previous support, a round number, a moving average. That overlap is called confluence. Sky Trade's drawing tools include Fibonacci. See the Fibonacci retracement guide.

Example

EUR/USD rises from 1.0800 to 1.0900. The 38.2% retracement is at 1.0862, 50% at 1.0850 and 61.8% at 1.0838. Price dips to 1.0851 and bounces near the 50% level.

Learn more in the academy

Fibonacci retracement: how to draw it and why traders watch it
How to draw Fibonacci retracement from swing to swing, what the 23.6, 38.2, 50, 61.8 and 78.6% levels mean, why they sometimes work, and common pitfalls.

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