Fibonacci retracement - definition

Fibonacci retracement is a technical analysis tool that identifies potential support and resistance levels based on key ratios derived from the Fibonacci sequence. It measures the percentage retracement of a price move, assuming that after a strong trend, prices will often pull back to predictable Fibonacci levels before resuming the original direction. This tool works best in trending markets and loses reliability in choppy, sideways conditions.

Common Fibonacci retracement levels:

23.6% | 38.2% | 50% | 61.8% | 78.6%

These percentages are applied to the vertical distance between a swing high and swing low (or vice versa) to calculate retracement price targets.

Assume the AUD/USD pair rallies from 0.6500 to 0.7000, a 500-pip move. You expect a pullback before the uptrend resumes. To find the 61.8% retracement level: 500 pips × 0.618 = 309 pips. Subtract from the high: 0.7000 − 0.0309 = 0.6691. This level acts as potential support.

• JPY pairs: For pairs quoted in yen (e.g., AUD/JPY), retracement levels are calculated in pips but displayed as standard price points (e.g., 0.618 × 100 pips = 61.8 pips). No special conversion needed.
• ASIC regulation: Australian traders must ensure Fibonacci retracement tools are used on regulated brokers (ASIC-licensed) to avoid manipulated data feeds that distort level accuracy.
• Non-standard levels: Some traders include 50% (not a true Fibonacci ratio) as a psychological level. The 78.6% level (square root of 61.8%) is less common but valid.

• Support
• Resistance
• Trend
• Swing high / swing low