The 38.2%, 50% and 61.8% retracement levels get the most attention from traders. The 61.8% level, often called the golden ratio, is especially popular as a last line of support in a healthy trend.
Each level tends to suggest something about the strength of the trend:
- 23.6%: a very shallow pullback, seen in strong, fast trends.
- 38.2%: a normal pullback in a healthy trend.
- 50%: not a Fibonacci ratio, but widely watched as a halfway point.
- 61.8%: a deeper pullback; many traders see it as the trend’s last good defence.
- 78.6%: a very deep retracement; a break below often questions the whole trend.
Here is a hypothetical case. Nifty futures rally 1,000 points from a swing low. A pullback of about 382 points that holds would be read as fairly strong. A pullback of 618 points is deeper but still within a normal trend for many traders. If price falls beyond 786 points, the original rally is in serious doubt.
The common mistake is assuming price will reverse exactly at a level. It often overshoots or turns a little before. Treat each level as a zone of a few points, and wait for a candle or volume signal there. Our Technical Analysis course shows how to combine Fibonacci with other tools.