Chart levels based on selected Fibonacci-related ratios, often including 38.2% and 61.8% retracements of a chosen move. The commonly plotted 50% level is a convention, not a Fibonacci ratio. Results depend on the selected swing points; the levels do not establish that a reversal or continuation will occur.
Example. A GBP/USD move from 1.2500 to 1.2700 spans 200 pips. A 38.2% retracement is at 1.26236, a 50% retracement at 1.2600, and a 61.8% retracement at 1.25764. The first and last levels round to 1.2624 and 1.2576 at four decimal places. A price reaction or hammer in that area does not guarantee continuation. Changing the selected swing or the convention for wicks and bodies changes the grid.
Formula and direction
For an advance from L to H, retracement r lies at H − r × (H−L). For a decline from H to L, rebound r lies at L + r × (H−L). Fifty per cent is conventionally included. A retracement percentage is not the level’s price, and an extension is not a guaranteed return.
Anchors and time
The swing rule determines both anchors. If the endpoint is confirmed only later, the final grid was unavailable at the extreme. Keep wick/body choice and source data consistent across the sample instead of shifting anchors to fit a reaction.
Level and executable entry
A touch can be an observation condition; a trade needs a separate trigger and appropriate Bid/Ask. Several ratios from the same anchors are not independent evidence. State touch tolerance and include no-reaction cases and expired signals rather than only successful examples.
FAQ
Which level matters most?
There is no universally best level. The 38.2%, 50% and 61.8% levels are common, but popularity does not establish effectiveness. Test the results of specific rules after costs.
Which points should anchor the grid?
Define in advance how swings are identified and whether wicks or bodies are used. Do not move the anchors afterwards solely to fit levels to a known result.
Do the levels predict a market reaction?
Not by themselves. They transform past prices. A hypothesis about a reaction requires testing; the tool's popularity or an additional pattern is not evidence of an edge.
How do retracements and extensions differ?
Retracements describe a pullback within the selected move; extensions describe proportions beyond it, such as 127.2% or 161.8%. They can be used to construct rules but do not guarantee that a target will be reached.
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