Fibonacci levels
What you learn in 3 minutesA reader recently watched USD/INR climb from 83.0000 to 83.2500, then pull back to 83.1550 before rising again. They had drawn Fibonacci levels on the chart and noticed the pullback stopped almost exactly at the 50 percent line. This lesson explains what that line actually is: a fixed fraction of a past move, and a place where many charts show the same level. You will learn to place three common levels, work out what a pip is worth on USD/INR in rupees, and see why the tool describes past price, not future price.
Three levels on a 250 pip move
| Step | Amount | Note |
|---|---|---|
| Move size | 250 pips | 83.2500 minus 83.0000 equals 0.2500, which is 250 pips on USD/INR. |
| 38.2 percent level | 83.1545 | 250 pips times 0.382 equals 95.5 pips. 83.2500 minus 95.5 pips equals 83.1545. |
| 50 percent level | 83.1250 | 250 pips times 0.50 equals 125 pips. 83.2500 minus 125 pips equals 83.1250. |
| 61.8 percent level | 83.0955 | 250 pips times 0.618 equals 154.5 pips. 83.2500 minus 154.5 pips equals 83.0955. |
| Value of 1 pip on one standard lot | ₹10 | One standard lot of USD/INR is 100,000 units. 100,000 times 0.0001 equals ₹10 per pip. |
| Value of the 38.2 percent level move on one standard lot | ₹955 | 95.5 pips times ₹10 per pip equals ₹955. |
Brokers may round the levels they display, and the spread, commission or swap charged on a trade varies between brokers. The figures above are arithmetic on the prices given, not a forecast.
The mistake people make here
The common mistake is treating a Fibonacci level as a signal to buy or sell. The lines are just fractions of a past move. Many people draw them after the move has already happened, so the lines fit the past perfectly and say nothing about the next candle. Instead, use the levels to mark areas where price paused before, and check whether other evidence agrees. If the level breaks, the fraction is still valid arithmetic, but the market has moved past it.Check yourself
USD/INR moves from 83.1000 to 83.3500. What is the 50 percent level of that move, and what is 61.8 percent of the move in pips?
The move is 83.3500 minus 83.1000 equals 0.2500, or 250 pips. The 50 percent level is 250 times 0.50 equals 125 pips below 83.3500, which is 83.2250. The 61.8 percent level is 250 times 0.618 equals 154.5 pips, which is 83.1955.
If the 38.2 percent level of a 200 pip move is reached on one standard lot of USD/INR, what is the pip value in rupees and the rupee value of that part of the move?
One pip on one standard lot is ₹10. 38.2 percent of 200 pips is 76.4 pips. 76.4 times ₹10 equals ₹764.