Fibonacci tools are popular because they give a quick, rule-based map of where a pullback might end and where the next leg might reach. They are a guide to likely reaction areas, not a prediction.
In the Fibonacci sequence (1, 1, 2, 3, 5, 8, 13…) each number divided by the next approaches 0.618, and dividing by the number two places later approaches 0.382. The 0.786 level is the square root of 0.618, and 1.272 is the square root of 1.618. The 50% level is not a Fibonacci ratio but is used by almost everyone because it marks the midpoint of the move.
A rally from 1.1000 to 1.1200 spans 200 pips. A 61.8% retracement sits at 1.1200 − 0.618 × 0.0200 = 1.1076.
The zone between 61.8% and 78.6% is called the golden pocket (or optimal trade entry in ICT terms, which uses 62–79%). Shallow pullbacks to 38.2% suggest a strong trend; a pullback beyond 78.6% suggests the original leg is losing strength; a full retrace cancels the leg.
To project where the next leg might go, traders use 127.2% and 161.8% extensions of the original leg: for an up-leg from 1.1000 to 1.1200, the 127.2% extension is 1.1000 + 1.272 × 0.0200 = 1.1254.
A Fibonacci level on its own is just a number. When it lands on a swing support or resistance, a supply or demand zone, or a fair value gap, more traders are likely watching the same price. The Forextity scanner flags those overlaps automatically.
Different traders pick different swing points, so the levels move. Fibonacci levels often fail, particularly in news-driven moves. Combine them with a stop-loss and an acceptable risk/reward.
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