Short answer: Fibonacci retracement is a charting tool that draws horizontal lines at set percentages between a recent high and low on a price chart. Traders use the lines, most often at 23.6%, 38.2% and 61.8%, to suggest where a price might pause or reverse during a pullback. It frames possible support and resistance zones, which are price levels where falling or rising prices may stall, but it is not a forecast.
Last reviewed: 5 November 2026
At a glance
| Element | What it is | Percentage |
|---|---|---|
| Swing high and swing low | Start and end of a significant price move, treated as the 100% move | 100% |
| First level | Dividing a Fibonacci number by the next number gives roughly 0.618 | 61.8% |
| Second level | Dividing a Fibonacci number by the number two places ahead gives roughly 0.382 | 38.2% |
| Third level | Dividing a Fibonacci number by the number three places ahead gives roughly 0.236 | 23.6% |
| Confirmation tool | Used alongside other indicators, not on its own | Not applicable |
What is the Fibonacci sequence?
The Fibonacci sequence is a list of numbers where each new number is the sum of the two before it: 0, 1, 1, 2, 3, 5, 8, and so on. For example, 3 plus 5 gives 8, and 5 plus 8 gives 13.
The percentages come from ratios within this list. Dividing a number by the number immediately after it gives roughly 0.618, or 61.8%. Dividing 8 by 13, for instance, gives about 0.615, which is close to that figure.
Dividing a number by the number two places ahead gives roughly 0.382 (38.2%), and dividing by the number three places ahead gives roughly 0.236 (23.6%). These three ratios are the ones that retracement tools use.
How are the levels drawn on a chart?
A trader first picks a recent swing high and swing low, meaning the start and end of a significant move. That move is treated as 100%, and the tool plots the percentage levels between the two points.
Here is a hypothetical example, with figures invented for illustration and not taken from any real stock. Suppose a share rises from a swing low of ₹500 to a swing high of ₹600. The move is ₹100, so:
- 23.6% of ₹100 is ₹23.60, so the line sits at ₹576.40, measured down from the high.
- 38.2% of ₹100 is ₹38.20, so the line sits at ₹561.80.
- 61.8% of ₹100 is ₹61.80, so the line sits at ₹538.20.
How do traders use the levels?
Traders use the levels to wait for a pullback before entering a trade, rather than acting at the peak of a move. The same levels can also help them set entry, exit, stop-loss (an order to close a position if the price moves against it by a set amount), or target points.
Fibonacci retracement is usually used as a confirmation tool, meaning one input alongside other indicators (calculations based on price or volume data). It is rarely used as the sole basis for a trading decision.
Where does the method fall short?
The method assumes that after a sharp move up or down, prices will pull back part of the way before resuming the original trend. That is an assumption, not a law. A sharp move may retrace further than any level on the chart, or not retrace at all.
Retracement levels are static, meaning they do not change once drawn. They cannot guarantee that a stock will stop or reverse at those prices, and other market factors can override them.
The choice of swing points also changes the result. Using the same ₹600 high but a swing low of ₹480 instead of ₹500 makes the range ₹120. The 61.8% level would then sit at ₹525.84 instead of ₹538.20, a gap of ₹12.36 from the earlier calculation. Two people reading the same chart can therefore draw different levels.
Frequently asked questions
Is Fibonacci retracement a reliable way to predict prices?
No. The levels are static and cannot guarantee that a stock will stop or reverse at those prices, and other market factors can override them.
Why are 23.6%, 38.2% and 61.8% the levels used?
They come from ratios in the Fibonacci sequence. Dividing a number by the next one gives roughly 61.8%, by the one two places ahead roughly 38.2%, and by the one three places ahead roughly 23.6%.
Can Fibonacci retracement be used on its own?
It is usually used as a confirmation tool alongside other indicators, rather than as a standalone basis for trading decisions.
Sources and last check
Facts in this article were checked against the sources below on 5 November 2026. Rules and figures can change; check the primary source before acting.
- groww.in (broker education)
- dhan.co (broker education)
- icicidirect.com (broker education)
- upstox.com (broker education)
- zerodha.com (broker education)
- kotakneo.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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