# Fibonacci 101

Education
AMEX:SPY   SPDR S&P 500 ETF TRUST
31611 views
Fibonacci retracements follow a mathematical principle set forth by Leonardo Fibonacci.
To put it simply - each level is a ratio between two other numbers, and there are countless examples of them being respected in the stock market, forex, crypto, commodities - you name it. For this reason, it's an essential tool in the technical trader's toolbox.

There are many uses for this tool:
• Finding regions of support or resistance
• Helping with stop loss placement
• Establishing targets to take profit - especially during price discovery (no existing S/R levels)

Rules of Thumb
While placement of your anchor points is somewhat subjective - a rule of thumb is to stick with glaringly obvious swing points.
Simple is best with this tool - one of the reasons that it works is that other traders (or trading algorithms) are watching the same regions of price as you are. No need to overcomplicate it!

For a bullish retracement (+ targets) - begin your Fibonacci at a swing low, and end it at a swing high.
For a bearish retracement (+ targets) - begin your Fibonacci at a swing high, and end it at a swing low.

The way I have my Fibonacci retracement tool configured, it includes some trend-based Fibonacci extensions in the calculations as well. This can be done by opening your Fibonacci settings and adjusting the inputs. The levels I have as inputs are as follows:
• 0 - This is your starting point
• 0.236 - The shallowest retracement
• 0.382 - Shallow retracement
• 0.5 - While not a Fibonacci number, this is the midpoint of your swing
• 0.618 - Commonly referred to as the "Golden Pocket" - this is generally a very important region of support/resistance .
• 0.705 - While not a Fibonacci number, this is the midpoint between the 0.618 and 0.786 - a level that tends to see lots of activity, and is thus included in my settings.
• 0.786 - This is the deepest retracement before a full retrace.
• 1 - This is your ending point
• -0.27 - While not a Fibonacci number, a very commonly used extension target during price discovery - Target #1.
• -0.414 - While not a Fibonacci number, a very commonly used extension target during price discovery - Target #2.
• -0.618 - This is your golden ratio - Target #3 during price discovery .
• -1 - This is a 100% extension of the distance between your starting & ending point.
• etc, etc - you can extend as far as you like!

Where Fibonacci extensions really shine is during price discovery - areas where there are no previous levels of support or resistance (new ATH's).
You can see on this \$SPY chart - using our Fib tool on the COVID crash gave us some very accurate upside targets for the subsequent rally into new ATH's.

I hope this introduction to the Fibonacci Retracement tool on TradingView helped you develop a basic understanding of it's applications - make sure to like if you learned something and follow us for more!

Will, OptionsSwing Analyst

This is a helpful guide for everyone and Fibonacci tools are timeless to talk about and chart. Your idea is featured in Editors' Picks!
Hi. Thank you so much for posting this! Question for the current market, is a bullish 100% or 200% extension possible? How would you figure out if this is the top and now will it retrace?
Thank you. So, I just draw my Fibonacci from a distinctive historical low to a high (and the other way around)?
Is this still useful on charts with shorter time spans? If so, what is the shortest you would recommend? Thanks!!
lainechristine
@lainechristine, Absolutely! From a strictly technical perspective - price is fractal. Meaning - price action & technical analysis concepts can be applied to charts of any timeframe and you can anticipate similar results (though higher timeframes take longer to play out). I often use fibs when daytrading on the 15min chart to give me some levels to expect resistance/support (and take some profit). It all depends on your trade's time horizon - the best resource you have for learning is screen time. I'd highly recommend going back a few days/weeks/months on multiple timeframes and backtest it! -Will