Use mathematical ratios to identify high-probability pull-back entries.
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Overview
Fibonacci retracement is a technical analysis tool based on the mathematical ratios derived from the Fibonacci sequence: 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Traders draw retracement levels between a significant swing high and swing low (or vice versa) and use these levels to anticipate where a pull-back might find support or resistance before the trend resumes.
The rationale is partly mathematical and partly self-fulfilling: because so many traders and algorithmic systems use these levels, they tend to act as coordination points where buy and sell decisions cluster. The 61.8% level β the "golden ratio" β is particularly significant and often marks the deepest pull-back that still preserves the trend structure.
A typical long setup involves: identifying a clear uptrend, waiting for a pull-back, drawing Fibonacci levels from the swing low to the swing high, and placing a limit buy order at the 50% or 61.8% level with a stop below the 78.6% level. Confluence with other indicators (RSI oversold, a key horizontal support, an order block) increases the probability of success.
Fibonacci extensions are used to project profit targets beyond the swing high, with the 127.2%, 161.8%, and 261.8% levels serving as common take-profit zones.
Strategy Code
This is a TradingView Pine Script strategy example for this page concept. Paste it into the TradingView Pine Editor, add it to your chart, and run it in the Strategy Tester.
//@version=6
strategy("Fibonacci Retracement Strategy", overlay=true)
emaFast = ta.ema(close, 20)
emaSlow = ta.ema(close, 50)
bullStructure = close > emaFast and emaFast > emaSlowThis is a thinkorswim ThinkScript strategy example for this page concept. Open thinkorswim, create a custom strategy, paste the script, and apply it to your chart.
def fast = ExpAverage(close, 20);
def slow = ExpAverage(close, 50);
def liquidityGrab = low < Lowest(low, 10)[1] and close > open;
def buySignal = close > fast and fast > slow and liquidityGrab;
def sellSignal = close < fast;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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