Technical analysis

How to Use Fibonacci Retracement to Find Entry Points

Astron Team · 09/24/2026 · 6 min read

Among the most widely used tools by those who study technical analysis is Fibonacci retracement, a mathematical sequence applied to the chart to identify levels where the price may find support or resistance after a significant move. Despite the complex-sounding name, the concept behind it is relatively simple to understand and apply.

In this article, you'll see where the most commonly used levels come from, how to draw them correctly, and, most importantly, how to avoid the most common mistake beginners make with this tool: treating it as a guarantee instead of a probability reference.

Where the Fibonacci levels come from

The Fibonacci sequence is a numerical progression in which each number is the sum of the two before it (1, 1, 2, 3, 5, 8, 13...). From the relationship between these numbers come ratios like 23.6%, 38.2%, 50%, 61.8%, and 78.6%, which show up repeatedly in natural phenomena and, according to many technical analysts, also in market price behavior. It's worth noting that 50% isn't technically a Fibonacci number, but it's usually included for its observed relevance on charts.

How to draw the tool correctly

To apply Fibonacci retracement, you need to identify a clear up or down move on the chart — from the most relevant low to the most relevant high, or vice versa. The tool is then stretched between these two points, and the charting platform automatically draws the horizontal lines corresponding to each ratio between them. The logic is: after a strong move in one direction, it's common for the price to pull back (retrace) to one of these levels before resuming the original trend, or reversing altogether.

A numerical example of application

Suppose an asset rises from R$ 40.00 to R$ 60.00, a R$ 20.00 move. Drawing the Fibonacci retracement between these two points, the 38.2% level would sit at approximately R$ 52.36 (R$ 60.00 minus 38.2% of R$ 20.00, meaning R$ 60.00 − R$ 7.64), and the 61.8% level would sit near R$ 47.64 (R$ 60.00 − R$ 12.36). A trader following this uptrend can watch these regions as possible entry points during a correction, expecting the price to resume its original direction after touching one of these levels — always with additional confirmation before deciding, and never buying just because the price reached the line.

Why confirmation matters as much as the level

• Combine with price action: watch for a reversal candle pattern showing up exactly at the Fibonacci level's region, instead of buying or selling as soon as the price touches the line.
• Watch the volume: a reaction with stronger volume at the level's region tends to be more reliable than a reaction on a day of weak trading.
• Check for confluence with support and resistance: Fibonacci levels that coincide with an already known support or resistance zone for the asset tend to gain more relevance than isolated levels.
• Set the stop in advance: usually a bit beyond the next Fibonacci level, to limit the loss if the reading turns out to be wrong.

Limitations of the tool

Fibonacci retracement doesn't predict the future — it only highlights regions that, historically, concentrate price reactions with some frequency. In many cases, the price simply ignores these levels and continues the move without any meaningful pause. Because of that, treating the tool as an isolated, sufficient signal to trade tends to lead to disappointment. It works better as an extra layer of analysis, added to other tools, rather than as a fixed entry rule.

Practical conclusion

Using Fibonacci retracement requires practicing the drawing on past chart moves until you naturally identify the relevant lows and highs, and then testing how the chosen asset historically reacts to each level. Like any technical analysis tool, it doesn't eliminate the risk of a trade going wrong — it just helps organize where to look for price reactions with a bit more context.

Fibonacci extensions: going beyond retracement

Beyond retracement levels, there are Fibonacci extensions, used to project possible targets beyond the original move, instead of just identifying correction points. Going back to the example of the asset that rose from R$ 40.00 to R$ 60.00, a 127.2% extension would project a target around R$ 65.44, and a 161.8% extension would project a target near R$ 72.36, calculated from the same R$ 20.00 range of the original move. Traders looking to set an exit target, not just an entry point, often combine these two applications of the same tool.

It's worth reinforcing that both Fibonacci retracement and extension work based on historical probability, not a deterministic rule. Using multiple time frames — for example, checking whether a Fibonacci level on the daily chart coincides with a relevant level on the weekly chart — tends to increase the reliability of the reading, but never eliminates the need for a well-defined stop in case the price simply ignores the marked region.