Fibonacci retracement

Two anchor points define it, the low and the high of a swing that has finished. The tool takes the vertical distance between them and draws lines at set proportions of it. Most of those proportions come from ratios between terms of the Fibonacci sequence; the halfway line, which is the one chartists quote most often, is not a Fibonacci number at all and is included purely by convention. The output is a measurement, not a signal: it reports the depth of a pullback as a proportion of the move it is pulling back against.

Practitioners disagree about what the lines mean and about how a touch is judged. One tradition holds that the proportions carry information of their own. Another holds that they matter only to the extent that participants watch them and place orders near them, which makes any effect a consequence of attention rather than of arithmetic. Whether a wick through a level counts as respecting it, or whether a close beyond it is required, is settled by house convention and not by any standard.

The grid moves whenever the anchors move. Selecting a different swing, or the same swing on a different timeframe, produces a different set of levels, so a claim that price respected a particular proportion is often a claim about a swing chosen after the event. It is also worth holding that a retracement level is a location on a chart and not a barrier: nothing in the construction prevents price from passing straight through one.