Fibonacci Retracements & Extensions
By Rohit Singh · Mr. Chartist, SEBI Registered Research Analyst
Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur, based on the Fibonacci number sequence discovered by Leonardo Fibonacci in the 13th century. These ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) appear repeatedly in nature, mathematics, and remarkably, in financial markets. The 61.8% level (the 'golden ratio') is the most important level in all of Fibonacci analysis.
Key points
- 23.6% Retracement: Shallow pullback — strong momentum. Only barely pulling back before continuing. Aggressive entry for momentum traders
- 38.2% Retracement: Healthy pullback in a strong trend. The first 'comfortable' retracement level. Often where institutional buying begins
- 50% Retracement: Not a true Fibonacci number, but markets respect it due to psychological significance. 'Half-way back' is a natural resting point
- 61.8% Retracement: The 'Golden Ratio' — the most important Fibonacci level. Strong trends often reverse exactly here. If this level breaks, the trend may be over
- 78.6% Retracement: Deep retracement — the trend is weakening significantly. If this breaks, expect a full retracement or trend reversal
- Fibonacci Extensions: Used for profit targets. 127.2%, 161.8%, 200% extensions of the prior swing. 161.8% is the most common target level
- How to Draw: Identify a clear swing low and swing high. Draw Fibonacci from swing low to swing high for uptrends (bottom to top). Reverse for downtrends
- Fibonacci + S&R Confluence: When a Fibonacci level coincides with a previous support/resistance level, it becomes extremely powerful. This confluence is what professionals look for
- Fibonacci Clusters: When multiple Fibonacci retracements from different swings cluster at the same price zone = very strong S&R
NIFTY rallied from 23,500 (swing low) to 24,580 (swing high). The 50% retracement is at 24,040, and the 61.8% retracement is at 23,912. If NIFTY pulls back to the 24,040-23,912 zone and forms a bullish pattern, it's a high-probability buying zone with stop-loss at 23,700 (below 78.6% at 23,731).
The highest-probability Fibonacci trade: Wait for price to retrace to the 50-61.8% zone AND show a bullish candlestick reversal pattern (Hammer, Engulfing) at that level. This combination of Fibonacci support + candlestick confirmation gives you a defined entry, a clear stop-loss (below 78.6%), and a logical target (previous high or 161.8% extension).
Written By
Rohit Singh
Mr. Chartist
With 14+ years of experience in Indian financial markets, Rohit Singh (Mr. Chartist) is a SEBI Registered Research Analyst, Amazon #1 bestselling author, and the founder of Investology — a premium trading ecosystem trusted by a 1.5 Lakh+ strong community across India.