What is Fibonacci Retracement?
Fibonacci retracement draws horizontal levels at set fractions of a prior price swing, most often 23.6%, 38.2%, 50%, 61.8% and 78.6%, to mark where a pullback might stop.
How it works
Traders pick a swing low and swing high, and the tool marks how far back a pullback has travelled as a percentage of that move. The ratios come from the Fibonacci number sequence (the 50% level is a convention rather than a Fibonacci ratio). The 50% to 61.8% region is often called the golden pocket.
What it can't tell you
No mechanism is established for why prices should respect these ratios, and the result depends heavily on which swing points the trader picks, which is a subjective choice.
Does it work as a strategy?
Tickfloor backtested 1 rule that use Fibonacci retracement, net of modelled trading costs, against a benchmark of the same assets. None finished ahead of the benchmark on the point estimate, and none cleared the corrected bar (Benjamini-Hochberg q below 0.10). These are specific tested implementations, not every way to use Fibonacci retracement, and a historical diagnostic, not validation under Testing Standard v2.
Tickfloor's research desk has backtested 517 strategies, most against an equal-weight benchmark of the same assets rebalanced daily that pays no costs (the strategies pay theirs). After correcting for the 598 tests run (Benjamini-Hochberg), 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.
Common questions
What is Fibonacci Retracement?
Fibonacci retracement draws horizontal levels at set fractions of a prior price swing, most often 23.6%, 38.2%, 50%, 61.8% and 78.6%, to mark where a pullback might stop.
How does Fibonacci Retracement work?
Traders pick a swing low and swing high, and the tool marks how far back a pullback has travelled as a percentage of that move. The ratios come from the Fibonacci number sequence (the 50% level is a convention rather than a Fibonacci ratio). The 50% to 61.8% region is often called the golden pocket.
Does Fibonacci Retracement work as a strategy?
Tickfloor backtested 1 rule that use Fibonacci retracement, net of modelled trading costs, against a benchmark of the same assets. None finished ahead of the benchmark on the point estimate, and none cleared the corrected bar (Benjamini-Hochberg q below 0.10). These are specific tested implementations, not every way to use Fibonacci retracement, and a historical diagnostic, not validation under Testing Standard v2.
What are the limits of Fibonacci Retracement?
No mechanism is established for why prices should respect these ratios, and the result depends heavily on which swing points the trader picks, which is a subjective choice.