Fibonacci retracements: an honest look

[Shadow Trader]

Fibonacci levels at 38.2, 50 and 61.8 percent are on almost every platform's toolbar. Many traders swear by them.

Skeptics point out that with so many levels available, something is always near price, and a bounce can be claimed as confirmation. Retracement levels from different swings also overlap, creating a thicket of lines.

Studies of whether price reacts more at Fibonacci levels than at arbitrary ones have mixed conclusions. Some find slight clustering, likely a self-fulfilling effect from traders using the same tool.

If the levels have value, it is as a shared reference. Orders from many participants gather there, so price often pauses nearby.

For scalpers, the tool is most useful on a short swing with a clear start and end, and when the level lines up with something independent, such as a round number or previous high.

A fair test is to count reactions at the 50 and 61.8 levels versus reactions at randomly chosen retracement percentages.

What has the experience with retracement levels been here, in terms of numbers and not impressions?