optionsswing

Fibonacci 101

Education
AMEX:SPY   SPDR S&P 500 ETF TRUST
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.

Personalizing Your Settings
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

Comments

This is a helpful guide for everyone and Fibonacci tools are timeless to talk about and chart. Your idea is featured in Editors' Picks!
200 coins
+11 Reply
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?
+12 Reply
Thank you. So, I just draw my Fibonacci from a distinctive historical low to a high (and the other way around)?
+6 Reply
Is this still useful on charts with shorter time spans? If so, what is the shortest you would recommend? Thanks!!
+4 Reply
optionsswing 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
+2 Reply
lainechristine optionsswing
@optionsswing, Ok! Thanks so much for your help and taking the time to respond.
Reply
Super helpful. Thank you.
+4 Reply
I don't get it. The 3 examples are showing a bearish movement. So why on the first one you trace the Fibonacci from top to bottom while on the other two examples you trace it from bottom to top?
+3 Reply
@optionsswing im wondering this as well.
+1 Reply
@hot_biscuit every move has a retracement. every wave has an extension based on what it is. Elliot wave principle is next kiddies
Reply
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