Fibonacci Retracement Trading

Fibonacci retracement levels mark areas where price is likely to find support or resistance during pullbacks. The 61.8% and 78.6% levels are the most reliable for trend continuation entries.

For prop traders, Fibonacci provides objective entry points with tight stops (just below the retracement level), producing R:R ratios of 2:1 to 4:1. The mechanical nature of the strategy reduces emotional decision-making.

1. Identify a clear impulsive move (trending leg) 2. Draw Fibonacci from the swing low to swing high (uptrend) or high to low (downtrend) 3. Wait for a pullback to the 61.8% or 78.6% level 4. Look for a rejection candle (pin bar, engulfing) at the level 5. Enter on confirmation with stop below the retracement zone 6. Target: previous high/low or 161.8% extension

Confluence factors: The setup is stronger when the Fib level aligns with a support/resistance zone, EMA, or order block.

Typical stop loss: 20–40 pips on H1 charts. At 1% risk on a $100K account ($1,000): - 20-pip stop: 5 standard lots - 40-pip stop: 2.5 standard lots

With target at 161.8% extension, R:R is typically 2.5:1 to 3:1. A 50% win rate at 2.5:1 R:R gives 0.75R expected per trade = 0.75% per trade at 1% risk.