Fibonacci Retracement: How to Draw and Trade the Levels
Fibonacci retracement marks levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a completed price swing, so you can see how deep a pullback has gone. Traders line the levels up with the trend and with support and resistance to plan entries, stop losses and take profits.
Fibonacci retracement is a charting tool that divides a completed price swing into horizontal levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of its height, so you can see how far a pullback has gone. Traders watch those levels during a pullback in a trend, and give the most weight to one that lines up with earlier support or resistance.
The levels come from ratios in the Fibonacci number sequence, apart from 50%, and they give you a consistent way to place entries, stops and targets.
What is a Fibonacci retracement?
A Fibonacci retracement is a set of horizontal lines drawn across one price swing that mark fixed percentages of the distance travelled. A retracement, or pullback, is a move against the swing's direction; the tool measures how deep it has gone as a share of the swing, from a swing low to a swing high or the other way round.
The 0% line sits at the end of the swing and the 100% line at its start. A pullback that reaches the 100% line has given back the whole move. The standard levels in between are:
| Level | Meaning on a rising swing |
|---|---|
| 23.6% | A shallow pullback: price has given back under a quarter of the rise |
| 38.2% | A moderate pullback |
| 50% | Half the rise given back |
| 61.8% | A deep pullback |
| 78.6% | A very deep pullback, close to the start of the swing |
The tool needs a clear swing to measure, which is why it is mostly used in trending markets. How to tell a trend from a range is covered in market structure: trends and ranges.
Where do the Fibonacci retracement ratios come from?
The Fibonacci retracement ratios come from dividing numbers in the Fibonacci sequence by numbers further along it, and each is a power of 0.618, the reciprocal of the golden ratio (about 1.618). The 78.6% level is the square root of 0.618, and the 50% level is the exception: it does not come from the sequence at all.
The Fibonacci sequence starts 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and each number is the sum of the two before it. Further along the sequence, the ratio between neighbouring numbers settles close to the golden ratio, φ ≈ 1.618, and its reciprocal, 1 ÷ φ ≈ 0.618.
| Level | How it is derived | Check with sequence numbers |
|---|---|---|
| 61.8% | A number divided by the next one, which approaches 1 ÷ φ ≈ 0.618 | 55 ÷ 89 ≈ 0.618 |
| 38.2% | A number divided by the one two places on, equal to 0.618² ≈ 0.382 | 34 ÷ 89 ≈ 0.382 |
| 23.6% | A number divided by the one three places on, equal to 0.618³ ≈ 0.236 | 21 ÷ 89 ≈ 0.236 |
| 78.6% | The square root of 0.618, √0.618 ≈ 0.786 | Not a direct ratio of sequence numbers |
| 50% | Not a Fibonacci ratio | Not from the sequence |
Is 50% a Fibonacci level?
No, the 50% level is not a Fibonacci ratio; it is simply the halfway point of the swing. It is included in most Fibonacci tools, including the default levels in MetaTrader 5, because a pullback of half the move is a widely watched reference point.
How do you draw a Fibonacci retracement?
You draw a Fibonacci retracement by choosing one completed swing and dragging the tool from its start to its end. Drag from the swing low to the swing high in an uptrend, or from the swing high to the swing low in a downtrend; the tool then places the levels between the two points.
- Find the trend. Check the market structure on your timeframe. In an uptrend you measure pullbacks down from a high; in a downtrend you measure pullbacks up from a low.
- Pick the swing. Choose a swing low and swing high that bound one clear move, ideally ones that stand out on the chart.
- Anchor the tool. In an uptrend, click the swing low and drag to the swing high. In a downtrend, click the swing high and drag to the swing low.
- Read the levels. Note the price of each level and whether any of them sits near something else on the chart, such as an earlier support or resistance area or a trend line.
Use one rule for choosing the swing and apply it every time. For example: wick to wick, on the timeframe you trade, using the most recent swing that broke the previous high (uptrend) or low (downtrend). A fixed rule means your levels are the same each time you look at the chart.
How do you calculate Fibonacci retracement levels?
To calculate a Fibonacci retracement level on a rising swing, subtract the swing's height multiplied by the ratio from the swing high. On a falling swing, add the height multiplied by the ratio to the swing low. For example, the 61.8% level of a $100 rise from $2,300 to $2,400 is $2,400 − $61.80 = $2,338.20.
- Uptrend (pullback down): level = swing high − (swing high − swing low) × ratio
- Downtrend (pullback up): level = swing low + (swing high − swing low) × ratio
Worked example (example numbers, not current prices). Suppose gold (XAUUSD) rises from a swing low of $2,300 to a swing high of $2,400. The swing height is $2,400 − $2,300 = $100.
| Level | Calculation | Retracement level on the rise |
|---|---|---|
| 0% | $2,400 − $100 × 0 | $2,400.00 |
| 23.6% | $2,400 − $100 × 0.236 = $2,400 − $23.60 | $2,376.40 |
| 38.2% | $2,400 − $100 × 0.382 = $2,400 − $38.20 | $2,361.80 |
| 50% | $2,400 − $100 × 0.500 = $2,400 − $50.00 | $2,350.00 |
| 61.8% | $2,400 − $100 × 0.618 = $2,400 − $61.80 | $2,338.20 |
| 78.6% | $2,400 − $100 × 0.786 = $2,400 − $78.60 | $2,321.40 |
| 100% | $2,400 − $100 × 1 | $2,300.00 |
If the same $100 swing had been a fall from $2,400 to $2,300, the levels for a pullback upwards would be $2,323.60 (23.6%), $2,338.20 (38.2%), $2,350.00 (50%), $2,361.80 (61.8%) and $2,378.60 (78.6%).
Work out the retracement levels
How do you trade Fibonacci retracement levels?
Trade the level that lines up with something else on the chart, enter on a reaction there, put the stop loss beyond the next level, and target the swing's end or an extension. Four steps turn the levels into a plan:
- Find the confluence zone. A Fibonacci level that sits near an earlier support or resistance area, a trend line or a round number is the one to trade. In the example above, if $2,340 acted as resistance earlier on the way up, the 61.8% level at $2,338.20 sits within $1.80 of it, so $2,338 to $2,340 is one zone.
- Wait for the reaction. Look for price to stall at the zone and print a bullish candle in an uptrend, such as a hammer or bullish engulfing candle, or a bearish one in a downtrend. The candlestick patterns guide shows how to read and enter on them.
- Place the stop beyond the next level. Below the 78.6% level in an uptrend, above it in a downtrend. A close past 78.6% means the pullback has become something larger, and the trade is over.
- Set the target. The end of the swing (the 0% level) is the first target; a Fibonacci extension is the next. How stops and targets work is explained in stop loss and take profit.
Some traders add an indicator such as RSI or a moving average. Give each tool a different job rather than stacking tools that say the same thing, as explained in how to combine indicators.
What does a Fibonacci pullback trade look like?
A Fibonacci pullback trade buys the 61.8% zone in an uptrend, with the stop beyond 78.6% and the target at the swing high. Gold has risen from $2,300 to $2,400 and pulls back into the $2,338 to $2,340 zone, where a bullish engulfing candle closes.
| Item | Working | Result |
|---|---|---|
| Entry | Top of the zone | $2,340 |
| Stop loss | Below the 78.6% level of $2,321.40 | $2,318 |
| Risk per ounce | $2,340 − $2,318 | $22 |
| Take profit | The swing high, the 0% level | $2,400 |
| Reward per ounce | $2,400 − $2,340 | $60 |
| Risk reward ratio | $60 ÷ $22 | About 1:2.7 |
On a position of 10 ounces, if gold rises to $2,400 the trade gains 10 × $60 = $600; if it falls to $2,318 the trade loses 10 × $22 = $220. Both before spread and swap. The risk reward ratio lesson explains the ratio, and the position size calculator turns a stop distance into a position size.
Downtrend, selling the 61.8% zone (the mirror case). Gold has fallen from $2,400 to $2,300 and rallies back. The 61.8% level of that fall is $2,361.80, and if $2,360 acted as support earlier on the way down, the zone is $2,360 to $2,362. A bearish engulfing candle closes there.
| Item | Working | Result |
|---|---|---|
| Entry | Bottom of the zone | $2,360 |
| Stop loss | Above the 78.6% level of $2,378.60 | $2,382 |
| Risk per ounce | $2,382 − $2,360 | $22 |
| Take profit | The swing low, the 0% level | $2,300 |
| Reward per ounce | $2,360 − $2,300 | $60 |
On 10 ounces, if gold falls to $2,300 the trade gains 10 × $60 = $600; if it rises to $2,382 the trade loses 10 × $22 = $220. How many ounces one lot covers is set by the symbol's contract size, shown in its Specification window in MetaTrader 5.
A stop loss closes the position at the next available price once its level is reached, so in a fast move around major news the fill can land beyond the level you set. High volatility around news can carry price through several levels in one candle, so check the economic calendar before you place the order.
What are the main Fibonacci retracement strategies?
Four Fibonacci retracement strategies cover most uses: trend continuation, confluence, stop placement and stepped targets. Trend continuation buys a pullback to 38.2%-61.8% in an uptrend or sells a rally in a downtrend; confluence trades only a level that lines up with support, resistance or a moving average.
Each strategy is a rule you can apply the same way every time. The examples use the gold swing above, from $2,300 to $2,400.
| Strategy | The rule | Example on the $2,300 to $2,400 swing |
|---|---|---|
| Trend continuation | Trade only in the direction of the swing. Wait for price to pull back into the 38.2% to 61.8% band, then enter on a reaction candle | The band runs from $2,361.80 down to $2,338.20; a buy is planned only inside it |
| Confluence | Trade a level only when it sits within a set distance of earlier support or resistance, a trend line or a moving average | 61.8% at $2,338.20 is $1.80 from old resistance at $2,340, so $2,338 to $2,340 is the zone |
| Stop placement | Put the stop beyond the next level past your entry, plus a small buffer for the spread | Entry $2,340 at 61.8%, stop $2,318 beyond 78.6% ($2,321.40): $22 risk per ounce |
| Targets in steps | First target at the swing end (0%), second at an extension | Part at $2,400, the rest toward the 100% extension at $2,438.20 |
On 10 ounces, the stop costs 10 × $22 = $220, the first target pays 10 × $60 = $600 on the whole position, and closing half at $2,400 and half at $2,438.20 gives 5 × $60 + 5 × $98.20 = $300 + $491 = $791, before spread and swap. A pullback that closes beyond 78.6% has become a larger move, so the trend continuation idea no longer applies and the stop has done its job.
Moving averages make a common confluence partner: in an uptrend, a 61.8% level sitting on a rising 50-period average gives two reasons to watch the same price. See moving averages and support and resistance for how to mark them.
What are Fibonacci extensions?
Fibonacci extensions are levels projected beyond the original swing, at ratios such as 61.8%, 100% and 161.8% of it, which traders use as take-profit targets once a pullback ends and the trend resumes. MetaTrader 5's Fibonacci Expansion tool uses three points: the start and end of the first swing, then the end of the pullback.
It measures the first swing's height from the end of the pullback.
Example. The first swing runs from $2,300 to $2,400, a height of $100, and the pullback ends at $2,338.20. Measured from $2,338.20:
| Expansion level | Calculation | Level |
|---|---|---|
| 61.8% | $2,338.20 + $100 × 0.618 | $2,400.00 |
| 100% | $2,338.20 + $100 × 1.000 | $2,438.20 |
| 161.8% | $2,338.20 + $100 × 1.618 | $2,500.00 |
The extension ratios also come from the golden ratio: 161.8% is φ itself, 261.8% is φ² and 423.6% is φ³. A common plan takes part of the position off at the swing high and moves the rest toward the 100% extension.
How do you draw Fibonacci retracement in MT5?
In MetaTrader 5, open the Insert menu and choose Objects > Fibonacci > Fibonacci Retracement, or pick the Fibonacci tool from the Line Studies toolbar. Then click the start of the swing and drag to its end, and the levels appear between the two points; drag an end point to adjust them.
- Open a chart. If you are new to the layout, start with the MetaTrader 5 platform tour.
- Choose Insert > Objects > Fibonacci > Fibonacci Retracement.
- Click the swing low, hold the mouse button and drag to the swing high (or from the swing high to the swing low in a downtrend).
- To change or move the object, drag its end points; the middle point moves the whole object without resizing it.
- Open the object's properties and use the Levels tab to edit the levels. MetaTrader 5 draws 0, 23.6, 38.2, 50, 61.8, 100, 161.8, 261.8 and 423.6 by default, so 78.6 has to be added there if you want it. Adding (%$) to a level's description shows its price on the chart.
To place the trade at a level, press F9, set Type to Pending Order and choose Buy Limit (below the current price, in an uptrend) or Sell Limit (above it, in a downtrend), then enter the price, stop loss and take profit and press Place, as MetaQuotes' help on executing trades describes. Practise the whole routine on a demo account: draw the tool on past swings, mark the confluence zones and write down the entry, stop and target each one gives.
What are the best Fibonacci retracement settings in MT5?
The Fibonacci retracement settings most traders use in MT5 are the default levels plus 78.6%: 0, 23.6, 38.2, 50, 61.8, 78.6 and 100, with 161.8 kept for targets. Add 78.6 on the Levels tab, give each level the description %$ so its price shows, and draw on the timeframe your plan uses.
| Level | In the MT5 default set? | What traders use it for |
|---|---|---|
| 0% | Yes | The swing end, and the first target |
| 23.6% | Yes | A shallow pullback in a strong trend |
| 38.2%, 50%, 61.8% | Yes | The main pullback band for entries |
| 78.6% | No, add it | The last level before the swing start; stops go beyond it |
| 100% | Yes | The swing start |
| 161.8% | Yes | An extension target beyond the swing |
| 261.8%, 423.6% | Yes | Far extensions; many traders delete them to keep the chart clear |
To change the settings, double-click the Fibonacci object to select it, right-click it and open its properties, then go to the Levels tab. MetaTrader 5 lists each level as a fraction, so 61.8% is 0.618. Click Add, enter 0.786 and type a description such as 78.6 (%$); the (%$) part shows the level's price on the chart. Delete any level you do not use, and set the colour and line style on the same tab. The levels you set apply to that object, so check them each time you draw a new one.
Which Fibonacci level should you use?
Use the level that lines up with earlier support or resistance, a trend line or a round number on your chart. The 38.2%, 50% and 61.8% levels are the most widely watched. Rather than favouring one ratio, let the chart decide: a single level with nothing else nearby is a weaker zone than 61.8% sitting on an old resistance line.
Keep the rest of the plan fixed: the stop beyond 78.6%, the first target at the swing end, and the position size set from the stop distance. Used that way, the tool gives you the same structure on every trade, on any timeframe and any market.
Frequently asked questions
What is the most important Fibonacci retracement level?
The 61.8% level gets the most attention because it is the golden ratio's reciprocal, and 38.2% and 50% are also widely watched. On your own chart, the most important level is the one that lines up with earlier support or resistance, because that is where two reasons to watch price meet.
Do you draw Fibonacci retracement from high to low or low to high?
Draw it in the direction of the swing you are measuring. In an uptrend, drag from the swing low to the swing high; in a downtrend, drag from the swing high to the swing low. The levels then measure the pullback against that move.
Is 78.6% a Fibonacci ratio?
It is derived from one: 78.6% is the square root of 0.618, the golden ratio's reciprocal. It is not a direct ratio of two Fibonacci numbers, and MetaTrader 5 does not include it by default, so you add it in the tool's Levels tab.
Which timeframe is best for Fibonacci retracement?
The tool works the same way on any timeframe. Use the timeframe your trading plan is written for, and draw the swing by the same rule each time. Swings on daily and H4 charts give wider levels, so they need wider stops and smaller position sizes for the same money at risk.
Sources
- MetaQuotes, Fibonacci Tools, MetaTrader 5 Help (accessed 19 October 2026): Fibonacci tools are applied through the Objects — Fibonacci items of the Insert menu or the Line Studies toolbar; the six Fibonacci tool types. https://www.metatrader5.com/en/terminal/help/objects/fibo
- MetaQuotes, Fibonacci Retracement, MetaTrader 5 Help (accessed 19 October 2026): how the object is drawn between two extreme points, its default levels (0, 23.6, 38.2, 50, 61.8, 100, 161.8, 261.8 and 423.6 percent), moving its points, the Levels tab and the (%$) description. https://www.metatrader5.com/en/terminal/help/objects/fibo/fibo_retracement
- MetaQuotes, Fibonacci Expansion, MetaTrader 5 Help (accessed 19 October 2026): the three-point expansion tool and its 61.8%, 100% and 161.8% levels measured from the end of the second wave. https://www.metatrader5.com/en/terminal/help/objects/fibo/fibo_expansion
- MetaQuotes, Executing Trades, MetaTrader 5 Help (accessed 19 October 2026): opening the order window with F9, choosing Pending Order and an order type such as Buy Limit or Sell Limit, the price, stop loss and take profit fields, and the Place button. https://www.metatrader5.com/en/terminal/help/trading/performing_deals
- Wikipedia, Fibonacci retracement (last edited 16 August 2025; accessed 19 October 2026): how the levels divide a move between two extreme points, and 61.8% and the golden ratio. https://en.wikipedia.org/wiki/Fibonacci_retracement
- Wikipedia, Golden ratio (accessed 19 October 2026): φ = (1 + √5) ÷ 2 ≈ 1.618, its reciprocal ≈ 0.618, and the ratio of consecutive Fibonacci numbers approaching φ. https://en.wikipedia.org/wiki/Golden_ratio
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