Fibonacci Retracement Strategy: Buy the Pullback
A Fibonacci retracement strategy that buys pullbacks to key Fib levels inside an established trend, using confluence to time entries.
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Fibonacci Retracement Strategy: Buy the Pullback
Overview
Fibonacci retracements mark the natural discount levels inside a trend. After a strong impulse leg, price often pulls back to the 38.2%, 50%, or 61.8% level before resuming. This strategy draws Fibs on a clear impulse and buys the pullback to a key level that aligns with other confluence — a moving average, a support zone, or a prior swing.
Setup
- Instruments: forex majors, stocks, index ETFs, crypto
- Timeframe: 4H or daily
- Indicators: Fibonacci retracement tool, 50 SMA, 200 SMA, ATR(14)
- Market regime: trending, with a clear impulse leg to measure
Draw the Fib from the swing low to the swing high of the most recent impulse (for longs).
Entry rules
- Confirm the higher-timeframe trend is up — price above the 200 SMA
- Identify a clear impulse leg and draw Fibs from low to high
- Wait for price to retrace to the 38.2%, 50%, or 61.8% level
- Require confluence: the Fib level must align with the 50 SMA, a prior support zone, or a round number
- Enter on a bullish reversal candle that closes at the Fib level
Stop loss
- Stop just below the 61.8% level, or below the swing low of the impulse
- Alternative: 1.5 × ATR(14) below entry
- Exit if a candle closes below the 61.8% level — the retracement has become a reversal
Use the stop loss calculator to set the distance.
Take profit
- First target: the previous swing high (the 0% Fib), take half off
- Second target: a Fib extension level such as 127.2% or 161.8%
- Trail the remainder below the 50 SMA
Confirm the target with the risk-reward calculator.
Risk management
- Risk 1% of account equity per trade
- Position size = risk amount ÷ (entry − stop). Verify with the position size calculator
- Take only one Fib entry per impulse — averaging into deeper levels adds risk
- Skip trades where no confluence exists; a Fib level alone is not an edge
When it fails
Fibonacci fails when the impulse leg was unclear or the trend has already broken. If price closes below the 61.8% level, the retracement has become a reversal — respect the stop. Never redraw Fibs to fit a losing trade.
Strategy is for educational purposes only. Not financial advice.