Fibonacci Retracement: Ratios and Anchors

Declare direction and endpoints

A retracement measures a move back through part of a previous price change. For an upward move from low L to high H, a downward retracement level at fraction r is H − r × (H − L). TradingView documents its retracement drawing and configurable levels. Reverse orientation or platform label settings can change which endpoint displays zero.

Common drawings include 23.6%, 38.2%, 50%, 61.8% and 78.6%. The 50% midpoint is a conventional chart level rather than a Fibonacci-sequence ratio. Listing several percentages does not provide independent evidence that price will respect any of them.

Calculate levels on an original move

Assume a completed hypothetical advance from 80 to 120, a range of 40. A 38.2% retracement from the high is 120 − 0.382 × 40 = 104.72. A 50% retracement is 100, and 61.8% is 95.28. These are drawing coordinates, not observed bids, offers or executable orders.

If another analyst chooses a starting low of 90 instead, the range is 30 and the 38.2% level becomes 108.54. The ratio did not change; anchor selection did. A claim that a level “worked” must disclose which anchors were available and why those particular extremes were chosen.

An extension beyond an endpoint is a different projection. Continuing to call every percentage a retracement can obscure whether the calculation lies within the prior range or beyond it. State the equation and the reference endpoint instead of relying on colored labels alone.

Time and scale create hidden choices

A swing may require several later bars to confirm. Drawing from its exact historical extreme is easy after the event, while a real-time procedure would have had to wait. Keep the swing timestamp separate from the confirmation timestamp and prohibit the strategy from acting before the anchor was known.

On a logarithmic chart, a tool may calculate proportional distances using log prices rather than linear price differences, depending on settings. The resulting level is not generally the same as linear interpolation. Also declare whether prices are adjusted for corporate actions and whether a continuous futures series has been back-adjusted.

Write a falsifiable observation rule

Decide in advance what counts as a touch: exact price, a specified tick tolerance, an intrabar high/low or a confirmed close. State when the drawing expires or is replaced. Otherwise, moving anchors and widening zones after each miss makes the idea impossible to evaluate consistently.

Compare valid price increments with theoretical levels. Review look-ahead bias before using confirmed swings, and log the original drawing in a journal. Ratios can organize a chart; a level’s predictive usefulness requires evidence beyond its numerical precision.