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Fibonacci retracement: the levels, discount and premium, and how to draw it

By Saad El Soussi, UAE-authorized finfluencer · Updated 2026-11-08

The Fibonacci retracement tool divides the last price swing (a swing low to a swing high, or high to low) into percentage levels, so that a pullback can be measured as "it has retraced 50%" or "62%" of the move. The lesson uses it for one purpose: finding an entry after an expansion, during the retracement, in a trending market only. In an upward expansion you want to buy in discount, below the 50% line; in a downward expansion you sell in premium, above 50%; the course's "optimal trade entry" is the 70.5% level, with lower-timeframe confirmation before entering. On gold's 4-hour chart from August to November 2026 the bounces with the trend retraced a median 72% of the leg, 10 of 12 reached the 50% line and 7 of those then continued to a new low; the pullbacks against the trend ran past 100% in 7 of 12 cases, which is why the lesson says trend first, tool second.

What the tool is for

The lesson introduces the Fibonacci tool briefly, as an insight before the advanced course goes deeper. It is popular among traders and used across all timeframes and markets, and the focus here is on the retracement tool, not extensions or fans. Three rules frame everything else:

It works best when the market is trending, upwards or downwards. You do not use it in a ranging market.
You apply it to an expansion (a leg of the trend) in order to find the retracement that follows it.
Its job is to help you find a good entry point after the expansion, when the market is about to pull back, not to predict where the trend ends.

Which means the tool comes last, not first. First the structure (higher highs and higher lows, or the reverse), then the levels, then the Fibonacci grid over the most recent leg to decide where inside the pullback you are willing to enter.

The levels, and where they come from

The lesson's grid: 0%, 50%, 62%, 70.5%, 79% and 100%. Two of those come from the Fibonacci sequence (1, 1, 2, 3, 5, 8, 13 ...): the ratio of consecutive numbers settles at 1.618, its inverse is 0.618 (shown as 62%), and the square root of 0.618 is 0.786 (shown as 79%); the usual charting tool also shows 23.6% and 38.2% (0.618 squared). The 50% line is not a Fibonacci ratio at all, just the midpoint of the leg, and 70.5% is the midpoint of 62% and 79%, which is why the course calls it the optimal trade entry: the middle of the zone where deep pullbacks tend to finish. Treat the numbers as a ruler, not as magic; what matters is that everyone draws the same ruler over the same swing.

Level	Origin	How the lesson uses it
0%	The end of the expansion (the most recent swing high in an uptrend, swing low in a downtrend)	Where the retracement starts
50%	The midpoint of the leg	The border between discount and premium
62% (61.8%)	1 ÷ 1.618	Start of the entry zone
70.5%	Midpoint of 62% and 79%	The optimal trade entry
79% (78.6%)	Square root of 0.618	End of the entry zone; beyond it the leg is in doubt
100%	The start of the expansion (the previous swing)	If the price goes past it, the swing has failed

Discount and premium

The lesson's image is a shop. In an upward expansion you want the price to come back down into discount, below the 50% line, before you buy: "we don't want to buy it expensive". In a downward expansion you want the price to come back up into premium, above 50%, before you sell: "we don't want to sell it cheap". The 0% to 50% half of the grid is one side, 50% to 100% is the other, and which one is "discount" depends only on the direction of the leg you drew.

Direction of the expansion	You want to	Wait for the price in	Best entry (lesson)	Stop
Up (bullish leg)	Buy	Discount: below 50% of the leg	Around 70.5%	Below 100% (the swing low) or below 79%
Down (bearish leg)	Sell	Premium: above 50% of the leg	Around 70.5%	Above 100% (the swing high) or above 79%

How to draw it correctly

Identify the most recent swing low and swing high on the chart you trade from (the lesson's example is a 4-hour chart).
If the market is trending down, draw the tool from the most recent swing high to the swing low; if it is trending up, from the swing low to the swing high. The 0% line sits at the end of the leg, the 100% line at its start.
The levels now show where the price may pause or reverse inside the pullback, which the lesson calls support and resistance retracement levels. Mark the 50% line and the 62% to 79% zone.
Wait for the price to reach the zone, then wait for lower-timeframe confirmation (a rejection candle or a small structure turn on the 15-minute or 1-hour chart) before entering. The lesson is explicit: when the price reaches just above 50%, "we don't want to sell immediately".

The lesson's own example is GBP/USD on the 4-hour chart in a downtrend: the grid drawn from the swing high to the swing low, the price retracing upward, 0% to 50% marked as discount (not for selling), 50% to 100% as premium, the optimal sell entry at 70.5%, which in that chart also lined up with a bearish fair value gap, a later lesson's concept that the course uses to judge the strength of a trend. Where two tools agree, the zone is worth more; where only the ruler says something, wait.

What we measured: how deep gold's pullbacks went

Data: hourly COMEX gold futures (GC=F, via Yahoo Finance) from 3 August to 2 November 2026, built into 401 four-hour candles; swing highs and lows marked with six candles on each side, the same method as on the market structure page. One quarter of one market in a falling period; the proportions will differ in other periods, so read them as a reality check on the lesson, not as odds.

The 26 swings give 24 legs with a following retracement. For each leg we measured how far the next move retraced it, and sorted the result into the Fibonacci zones. Gold fell over the period, so the "down leg, then bounce" rows are the moves with the trend and the "up leg, then pullback" rows are against it:

Retracement ended in	With the trend (12 bounces after down legs)	Against the trend (12 pullbacks after up legs)
Under 38.2%	0	0
38.2% to 50%	2	0
50% to 61.8% (discount / premium border)	3	0
61.8% to 70.5%	1	1
70.5% to 78.6%	0	1
78.6% to 100%	3	3
Over 100% (the swing failed)	3	7
Median retracement	72%	112%
Reached the 50% line	10 of 12	12 of 12
Reached 50% and then continued (stayed under 100%)	7 of 12	5 of 12
Reached 70.5%	6 of 12	11 of 12
Reached 70.5% and then continued	3 of 12	4 of 12

What it says. With the trend, the lesson's zone is where the bounces finished: the median bounce gave back 72% of the leg, almost exactly the 70.5% the course calls the optimal entry, and five in six bounces reached the 50% line before the next lower low. But the zone is wide: three bounces stopped between 50% and 62% (a seller waiting at 70.5% missed them), and six of twelve went past 79%, half of those past 100%. So "enter at 70.5% and stop above 79%" would have been stopped in half the bounces; "enter at 70.5% and stop above the swing high" in three of twelve, with a stop three times as wide. That trade-off, a tight stop that is hit often or a wide stop that is hit rarely, is the real decision, and the lot size calculator makes either one cost the same 1%.

Against the trend the tool failed as the lesson says it will: seven of the twelve pullbacks after an up leg went below the leg's starting point, so "buying the discount" of an up leg inside a falling daily structure lost more often than not. A note on method: because a swing needs six candles on each side to count, very shallow retracements (under 38%) cannot appear in this sample; a 1-hour chart would show them. The lesson's point stands either way: trend first, then the ruler.

A worked example

Gold, 4-hour chart, daily structure bearish. The most recent leg fell from a swing high of $4,100 to a swing low of $3,950, $150. Grid drawn from the high to the low. Levels: 50% = 3,950 + 75 = $4,025; 62% = 3,950 + 93 = $4,043; 70.5% = 3,950 + 105.75 = $4,056; 79% = 3,950 + 118.5 = $4,068.5. The price bounces into premium and, at $4,056, the 1-hour chart prints a rejection wick and a lower high. Entry: sell at $4,056. Target: the swing low at $3,950, $106 away.

Stop choice	Stop	Risk per lot-unit	Lots at $50 risk	Loss at the stop	Gain at the target	Reward-to-risk	How often that stop was hit in our 12 bounces
Above 79%	$4,072	$16	50 ÷ (16 × 100) = 0.031 → 0.03	0.03 × 100 × 16 = $48	0.03 × 100 × 106 = $318	6.6R	6 of 12
Above the swing high	$4,105	$49	50 ÷ (49 × 100) = 0.010 → 0.01	0.01 × 100 × 49 = $49	0.01 × 100 × 106 = $106	2.2R	3 of 12

Both are 1% of a $5,000 account. The tight stop pays 6.6R when it works and is wrong half the time; the wide stop pays 2.2R and is wrong a quarter of the time. In the sample, both come out ahead over twelve trades before costs (6 × 6.6R − 6 = +33.6R; 9 × 2.2R − 3 = +16.8R), but twelve trades is not evidence, it is an illustration of why the stop decides the trade. Check your own variation in the profit calculator.

Key points from the lesson

Use Fibonacci retracement in a trending market only, on an expansion, to find the entry in the retracement that follows.
Levels: 0%, 50%, 62%, 70.5%, 79%, 100%. Below 50% of an up leg is discount (buy there); above 50% of a down leg is premium (sell there).
Draw it from the most recent swing high to swing low in a downtrend, swing low to swing high in an uptrend.
The optimal trade entry is around 70.5%; a level that coincides with another tool (the lesson's example: a bearish fair value gap) is stronger.
Never enter on the level alone: wait for lower-timeframe confirmation.
Our numbers: with the trend, gold's bounces retraced a median 72%; against the trend, 7 of 12 pullbacks failed the swing entirely.

Previous summary in the module: support and resistance. Related: market structure (how to find the swings you draw the grid on), candlestick patterns (the confirmation inside the zone) and trading timeframes.

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Questions people ask

What is Fibonacci retracement in trading?

A tool that divides the most recent price swing into percentage levels (the course uses 50%, 62%, 70.5% and 79%) so a pullback can be measured against the leg it is retracing. Traders use it to decide where inside the pullback to enter in the direction of the trend.

Which Fibonacci levels are the most important?

In the lesson, the zone from 62% to 79% with 70.5% as the optimal trade entry, and the 50% line as the border between discount and premium. In our gold sample the bounces with the trend retraced a median 72%, close to that entry.

How do I draw Fibonacci retracement correctly?

Find the most recent swing high and swing low. In a downtrend draw from the swing high to the swing low; in an uptrend from the swing low to the swing high. The 0% line is the end of the leg and the 100% line is its start.

Does Fibonacci work in a sideways market?

The lesson says no: it is for trending markets and for expansions. In a range there is no expansion to retrace, and the levels are just lines across the box.

What is the 70.5% level?

The midpoint of 62% and 79%, the two Fibonacci-derived levels that bound the deep-retracement zone. It is not a Fibonacci number itself; the course uses it as the single best price to look for an entry, with confirmation on a lower timeframe.

Is this the full lesson?

No. It is a written summary with the key points and our own measurements added. The course has 87 video lessons in three modules; the bot can tell you about it.

Authorized in the UAESaad Nizar El Soussi, founder of SesTrading, is listed by the UAE Capital Market Authority as an authorized finfluencer (entry 193, added 24 September 2026). Check the official list.