Price rarely travels in a straight line. It pushes in one direction, pulls back part of the way, then carries on — or reverses. Fibonacci retracement is a tool for guessing how deep that pullback runs. You take one completed move, drop a few horizontal lines across it, and watch whether price pauses or turns at them. The lines come from ratios tied to the Fibonacci sequence, and traders use them to plan entries into a trend that is already under way.
The levels
The retracement levels are drawn as percentages of the prior move:
- 23.6% — a shallow pullback.
- 38.2% — the first level most traders watch.
- 50% — not a Fibonacci ratio at all, but included by long convention. Half a move back is a natural place to look.
- 61.8% — the "golden ratio", and the deepest pullback many trend traders will still trust.
- 78.6% — beyond this, the move is usually considered broken.
The three that carry most weight are 38.2%, 50% and 61.8%. If price falls past 61.8% and keeps going, the original trend is in doubt.
How to draw them
Pick one clean swing. In an uptrend, click the tool at the swing low and drag to the swing high; the levels fill in between. In a downtrend, go high to low. The aim is to capture a single, obvious leg — not a messy stretch of chart with three overlapping moves in it. Two traders who pick the same swing get the same lines. Two who pick different swings get different lines, which is the first clue that this is judgement, not measurement.
A worked example
GBP/USD rallies from 1.2500 to 1.2700 — a 200-pip leg. The retracement levels sit at:
- 38.2% → 1.2624
- 50% → 1.2600
- 61.8% → 1.2576
You think the uptrend has further to go and want to buy the dip. You place a buy order at the 50% line, 1.2600, with a stop just below the 61.8% line at 1.2570 — a 30-pip risk. On 0.5 lots that is roughly £4 per pip, so about £120 at risk. If price holds 1.2600 and pushes back to new highs, you entered a long trend at a discount. If it slices through 1.2570, you are out for £120 and the idea was wrong. The levels gave you a plan and a place to be wrong, which is most of what they are good for.
Fibonacci levels work partly because so many traders watch them — the reaction can be self-fulfilling. That also means they fail together. When a level "should" hold and does not, the stop run through it can be sharp.
A caution on over-reliance
Draw enough lines on a chart and price will touch one eventually. That is the trap. With five levels on every swing, you can always find a Fibonacci line near any turn after the fact and call it a hit. Used honestly, retracement is one input — best when a level lines up with something else, like a moving average, a prior support zone or a round number. Used as a crystal ball, it becomes a way to justify a trade you already wanted to take. No ratio predicts the future; it only marks places worth watching.
The Karnek note
Karnek does not draw Fibonacci levels on your charts — it reads your account, not your price feed. What it does show is whether an EA or manual system built on these entries actually makes money on your live terminal, over enough trades to mean something. It is read-only and can never place a trade.
Written and reviewed by the Karnek Research team. Last updated August 2026.
Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.