How to Use Fibonacci Retracements to Find Entry and Exit PointsAlright, traders, let’s talk about Fibonacci Retracements — the tool that’s part math, part mysticism, and all about finding those sweet spots for entry and exit. If you’ve ever wondered how seasoned traders seem to know exactly when to jump in and when to cash out, chances are they’ve got Fibonacci retracements in their toolbox (or they’re insider trading).
What Are Fibonacci Retracements?
Fibonacci Retracements are based on the famous Fibonacci sequence — a string of numbers discovered in the 1200s by the medieval Italian mathematician Leonardo of Pisa (later nicknamed Fibonacci, meaning "son of Bonacci"). The sequence of numbers starts with 1, 2, 3, 5 and grows by adding the sum of the two previous numbers.
These mystical numbers show up everywhere from pinecones and seashells to the human hand and the Apple logo and, of course, the charts. It all comes down to 61.8%, the golden child of market moves and corrections. But before you go off believing Fibonacci is some sort of market sorcerer, let’s break it down.
The Key Levels
23.6%, 38.2%, 50%, 61.8%, 78.6% : These are the Fibonacci retracement levels you’ll see on your chart when you whip up the Fibonacci Retracement. They’re acting as the market’s pit stops — areas where the price could take a breather or reverse altogether.
Traders use these levels to predict how far a price might pull back before resuming its trend. Put simply, it’s like finding the market’s sweet spot where it says, “Enough with the chit-chat, let’s bounce.”
How to Use Fibonacci Retracements
Identify the Trend : First, you need a clear trend — trace a price trajectory and make sure there is a well-defined and sustained move either up or down with a clear reversal at the end. No trend? No Fibonacci.
Draw the Retracement : Stretch the Fib tool from the start of the move (swing low) to the end (swing high). If the trend is up, draw from low to high. If it’s down, high to low. Watch as those golden ratios light up your chart like a Christmas tree. Now you’ve got your levels mapped out and you can easily start looking for the potential turning points.
Spot the Bounce : The series of horizontal lines on your chart — these are your Fibonacci levels, and they’re not just pretty—they’re potential support and resistance zones. When the price retraces to a Fib level, it’s decision time. Will it bounce, or will it break? The 61.8% level is the big one — the golden ratio. If the price holds there, it may be a sign that the trend could continue. If it breaks, well, it’s time to reassess. Think of it as the market’s line in the sand.
Finding Entry Points
Here’s where it gets interesting. Imagine the market’s been on a bull run, but then starts to pull back. You’re itching to buy, but where? This is where Fibonacci levels shine.
When the price retraces to a key Fibonacci level (say 38.2% or 50%), it’s like the market is pausing to catch its breath. That’s your cue to consider entering a position. You’re aiming to ride the next wave up once the market finishes its coffee break at one of these levels.
Nailing Exit Points
On the flip side, if you’re already in a trade and looking to lock in profits, those same Fibonacci levels can be your guide for exiting. If the price is approaching a key level from below, it might be time to secure your gains before the market pulls another U-turn.
For the bold and brave, you can even set your sights on the 161.8% level — this is where Fibonacci extensions come into play. It’s a target for when the market decides it’s not just going to bounce, but rocket into the stratosphere.
Pro Tip: Fib Confluence
Looking to up your game? Combine Fibonacci with other indicators like moving averages or trendlines. When multiple signals converge around a Fib level, it may be a strong confirmation that the trend could turn. Pay attention and always do your own research — fakeouts are real.
Why It Works (and Why It Doesn't)
Some say Fibonacci levels work because they’re rooted in natural mathematics. Others believe it’s a self-fulfilling prophecy because so many traders use them. And just like any strategy, it doesn’t work 100% of the time. The market has a mind of its own, and sometimes it just doesn’t care about your Fibonacci levels. But when they do work, they can give you a serious edge.
The Bottom Line
Fibonacci Retracements aren’t just a bunch of lines on a chart — they’re your reminder that maybe everything is indeed one from the universe’s perspective and there are naturally occurring patterns everywhere.
Whether you believe in the math and the or just like the results, one thing’s for sure: Fibs can give you an edge in spotting when to hold back or lean forward. So next time you’re stuck wondering when to buy or sell, try the Fibonacci.
