Fibonacci Retracements and Pivot Points

Fibonacci retracements

In an uptrend, draw from the swing low to the swing high; the tool marks 23.6, 38.2, 50, 61.8 and 78.6 percent of the way back down. A pullback that stalls at 38.2 or 50 percent and resumes is a shallow correction in a strong trend; one that reaches 61.8 percent is deeper but common. There is nothing mathematically special about these levels in markets; they work to the extent that traders watch them, which is enough to make them worth marking.

Pivot points

The standard pivot is the average of the previous day's high, low and close. First resistance is twice the pivot minus the low; first support is twice the pivot minus the high; further levels extend outwards. Day traders use them as intraday reference levels, and because the calculation is identical for everyone, price often reacts at them. Weekly and monthly pivots work the same way on longer timeframes.

Confluence

A Fibonacci level on its own is a guess. A 61.8 percent retracement that coincides with a prior swing low, a daily pivot and a rising 50-period moving average is a level with several reasons to hold. That stacking is confluence, and the next lesson makes it the organising idea for combining tools.

Keeping them honest

Both tools can be drawn to fit almost any chart after the fact: pick a different swing and a different level lines up. Decide the swing points by rule, use the same levels every time, and require confirmation from structure before acting.

Key takeaways

• Fibonacci retracements mark pullback candidates at 38.2, 50 and 61.8 percent of a swing.
• Pivot points derive levels from the prior period's range and are shared by everyone.
• Both are candidates; confluence with structure makes them levels.
• Draw them by rule, not to fit the chart.