Fibonacci levels
What you learn in 3 minutesFibonacci levels are a set of horizontal lines drawn at fixed proportions of a price move. The word comes from the surname of Leonardo Fibonacci, but on a chart the tool is simply a grid: you pick a swing low and a swing high, and the platform divides that distance into the same fractions every time. The levels most platforms show by default are 23.6 per cent, 38.2 per cent, 50 per cent, 61.8 per cent and 78.6 per cent of the move. What they mark is not a prediction. They mark prices where many other people have drawn the same lines, so orders and attention tend to collect there.
A 38.2, 50 and 61.8 grid on a finished move
| Step | Amount | Note |
|---|---|---|
| Swing low | 0.6600 | The low of the completed move, read from the chart. |
| Swing high | 0.6700 | The high of the completed move, read from the chart. |
| Size of the move | 0.0100 | 0.6700 minus 0.6600, in US dollars per AUD. |
| 38.2 per cent level | 0.6662 | 0.6700 minus 0.382 x 0.0100. |
| 50 per cent level | 0.6650 | 0.6700 minus 0.500 x 0.0100. |
| 61.8 per cent level | 0.6638 | 0.6700 minus 0.618 x 0.0100. |
| One pip | 0.0001 | The standard pip size for AUD/USD. |
| Value of one pip on one standard lot | A$10 | 100,000 x 0.0001 = 10 US dollars, converted to Australian dollars at the current rate. |
Brokers differ in how they round displayed prices and in the spreads and commissions they charge on top. The pip value in Australian dollars moves with the exchange rate, so check the figure your own platform shows.
The mistake people make here
The common mistake is to treat a Fibonacci level as a signal on its own: price touches 61.8 per cent, so the reader buys. A level is only a place on the chart, not a reason to act. The grid also depends entirely on which low and which high you chose, and two people can pick different swings and get different lines. Draw the grid, then look for other evidence at that price, such as a clear reaction or a level that has mattered before. If nothing else agrees, the line means very little.Check yourself
A move runs from 0.6600 to 0.6700. Where is the 50 per cent level?
The move is 0.0100. Half of it is 0.0050. Subtract from the high: 0.6700 minus 0.0050 = 0.6650.
The 61.8 per cent level sits at 0.6638. How many pips is that below the high at 0.6700?
0.6700 minus 0.6638 = 0.0062, which is 62 pips.
One standard lot of AUD/USD is 100,000 units and one pip is 0.0001. What is one pip worth in US dollars?
100,000 x 0.0001 = 10 US dollars. In Australian dollars it depends on the exchange rate at the time.