How to Use Fibonacci to Set Targets & Stops (Complete Guide)

Jasper Osita - Market Analyst

2025-07-10 09:13:30

Goal of This Lesson

To equip you with the practical tools to use Fibonacci retracement and extension levels for precise stop-loss and take-profit placement, while clearly understanding their differences, use-cases, and how to avoid common mistakes.

Real-Life Analogy: Measuring the Bounce vs Projecting the Flight

Imagine a basketball hits the floor:

Retracement is like measuring how far it pulls back after bouncing — a reactionary tool

Extension is like projecting where it will land after you throw it again — a forecasting tool

Both serve different purposes but are part of one coherent move. In trading, you use retracement to wait for the pullback and extension to project how far price could go next.

Fibonacci Retracement Review

The Fibonacci retracement tool is used to measure the pullback of a price move. It helps traders anticipate where price might reverse or react before continuing in the original direction.

Common Retracement Levels

Fibonacci Level	What It Suggests
0.236	Shallow pullback in a very strong trend
0.382	Common correction zone in healthy trends
0.500	Midpoint level; not a true Fibonacci ratio
0.618	Golden Ratio; high-probability reversal zone
0.705	Hidden "sniper zone"; used for precision entries
0.786	Deep retracement; last chance before invalidation

Using Fibonacci to Set Stop-Loss (SL)

Retracement Level	SL Logic
Below 0.618	Ideal SL if entering at 0.382/0.5
Below Swing Low (or High)	Smart Money SL to avoid retail wicks
Below FVG or Order Block	SMC confirmation-based SL

Golden Rule: Never place your stop directly on a Fib level — always leave a buffer of 5–10 pips ( what I recommend: structure-based after a breakout) to reduce stop-outs from manipulative spikes.

For types of stop-loss, read: Mastering Risk Management: Stop Loss, Take Profit, and Position Sizing

Check this out for breakout trading: How to Trade Breakouts Effectively in Day Trading with Smart Money Concepts

Key Use-Cases:

Find entry zones (typically at 0.382, 0.5, 0.618)
Identify smart stop-loss placements just beyond retracement zones
Confirm potential reversals in a trending market

What is Fibonacci Extension?

The Fibonacci extension tool goes one step further. It projects future price targets beyond the original impulse move, and is used primarily for setting take-profits after price resumes in the trend direction.

Using Fibonacci to Set Take-Profit (TP) Targets

Extension Level	Meaning	When to Use
1.0	Equal to the original impulse	Conservative TP1
1.272	Shallow extension	TP1 or TP2 (choppy markets)
1.618	Golden extension level	TP2 or TP3 (strong trends)
2.0	Full expansion move	Final TP in parabolic moves

How to Draw Fibonacci Extensions:

Select the Fibonacci Extension Tool (not the retracement tool)
Plot three key points:

Point A (swing low) – start of the move
Point B (swing high) – end of the move
Point C (retracement low) – where price pulls back

The tool then projects levels like 1.0, 1.272, 1.618, 2.0, and beyond.

Key Differences Between Retracement vs Extension

Criteria	Fibonacci Retracement	Fibonacci Extension
Purpose	Identify pullback zones	Project take-profit zones
Plotted From	Two points (swing low to high)	Three points (low → high → retracement)
Used For	Entry + stop-loss	Target projection
Key Levels	0.382, 0.5, 0.618	1.0, 1.272, 1.618, 2.0
Common Timing	Before entering the trade	After entering the trade

Common Mistakes Traders Make with Fibonacci Extensions

Using extensions without a confirmed retracement

– You must wait for a proper pullback (Point C) before drawing the extension.

Forcing Fibonacci on every chart

– Only use when a clear trend or impulse leg is present. Avoid using it in consolidation or choppy markets.

Relying only on Fibonacci without price confirmation

– Fibonacci levels are probability zones, not guarantees. Use confirmation like structure breaks, AMD, MSS, or liquidity sweeps.

Cluttering the chart with too many levels

– Focus on the 1.0, 1.272, 1.618, and 2.0 levels for cleaner trading decisions.

Ignoring context (news, fundamentals, session timing)

– Even the best Fibonacci setup can fail in high-volatility or news-driven environments. Use calendar filters.

Actionable Blueprint

Step	Tool	Task
1	Retracement	Mark your entry zones (0.5, 0.618) and structure
2	Retracement	Set SL below 0.618 or swing low with buffer
3	Extension	Draw 3-point extension for TP1–TP3 levels
4	Confirm	Look for liquidity sweeps, MSS, or FVGs near these levels

Start Practicing with Confidence — Risk-Free!

Now that you understand how to use Fibonacci retracements and extensions for both stop-loss and take-profit placements, it’s time to practice on real charts.

Open your favorite pair.
Identify an impulse move.
Draw the retracement, then the extension.
Test your entry, stop, and targets.

Start Practicing with Confidence — Risk-Free!

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This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

作者

Jasper has been in the markets since 2019 trading currencies, indices and commodities like Gold. His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals. He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.

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価格はあくまでも目安

How to Use Fibonacci to Set Targets & Stops (Complete Guide)

Goal of This Lesson

Real-Life Analogy: Measuring the Bounce vs Projecting the Flight

Fibonacci Retracement Review

Common Retracement Levels

Using Fibonacci to Set Stop-Loss (SL)

Key Use-Cases:

What is Fibonacci Extension?

Using Fibonacci to Set Take-Profit (TP) Targets

How to Draw Fibonacci Extensions:

Key Differences Between Retracement vs Extension

Common Mistakes Traders Make with Fibonacci Extensions

Using extensions without a confirmed retracement

Forcing Fibonacci on every chart

Relying only on Fibonacci without price confirmation

Cluttering the chart with too many levels

Ignoring context (news, fundamentals, session timing)

Actionable Blueprint

Start Practicing with Confidence — Risk-Free!

Start Practicing with Confidence — Risk-Free!

Check Out My Contents:

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