The Fibonacci retracement formula
Range = swing high − swing low
Uptrend retracement = swing high − range × ratio
Downtrend retracement = swing low + range × ratio
Extensions use the same range: in an uptrend they sit at swing low + range × ratio for ratios above 100%, above the high; in a downtrend at swing high − range × ratio, below the low.
Worked example
Gold rallies from 2,380.00 to 2,450.00 (example prices), a range of 70.00. The 38.2% retracement is 2,450.00 − 70.00 × 0.382 = 2,423.26, the 50% level is 2,415.00 and the 61.8% level is 2,406.74. If the rally resumes, the 161.8% extension sits at 2,493.26.
Using Fibonacci levels well
- Levels are zones, not exact prices. Wait for price to react, for example a rejection candle, before acting on one.
- Levels that line up with something else, such as a previous support, a round number or a pivot point, tend to matter more.
- Place the stop loss beyond the next level or the swing point, and check the setup's reward against its risk with the risk reward calculator.