Free lesson · Technical analysis

Fibonacci retracements: anchors before ratios

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• Choose a confirmed low and subsequent confirmed high for an upswing. A downswing uses the mirrored construction.
• Common chart ratios include 23.6%, 38.2%, 50%, 61.8% and 78.6%. The 50% midpoint is conventional, not a Fibonacci sequence ratio.
• Fibonacci ratios motivate a geometric grid. The price market is not constrained to obey that grid.
• Freeze anchor timestamps and the confirmation rule. Replacing anchors after seeing a bounce changes the historical strategy.
• Use level distance, reaction frequency or conditional return as a measurable hypothesis. Compare with equally spaced and randomized-ratio grids.
• Extensions project beyond an anchor and are different from retracements inside the completed move. Test targets and entries separately.

Use the rule

• Fix the definition, units and information timestamp.
• Compute the example and inspect the graph.
• Compare with a simple baseline on untouched periods after costs.

Before moving on

Write the exact rule, its availability time, an invalidation condition and a fair out-of-sample test.

• Research context: review the related evidence checkpoint. The numerical convention here defines a candidate feature; that related research does not validate this exact rule.

def retracement(low,high,ratio):
    if high<=low or not 0<=ratio<=1: raise ValueError("Ordered anchors and ratio in [0,1] required")
    return high-ratio*(high-low)

print(retracement(100,120,.618))