Fibonacci levels
The point is not that the lines predict anything. The point is that many people watch the same levels, so orders tend to gather there. A comparison of two cases shows the difference between using the grid as a map and treating it as a signal.
Mark the move
A Fibonacci grid needs one clear move that has already finished. On a EUR/USD chart, that could be a rise from 1.0800 to 1.0900. You do not need to know why it happened. You only need the start and the end.
Draw the grid once, when the move is complete. Do not redraw it while price is still moving. If you redraw, the lines move with price and stop being a fixed map.
The grid divides the distance between the two prices into parts. The common parts are 38.2 per cent, 50 per cent and 61.8 per cent. These numbers come from a sequence, but their use here is simple: they mark fixed positions inside the move.
Measure the range
Count the pips from the start to the end. In the example, 1.0800 to 1.0900 is 100 pips. Write that number down. Every level you calculate will be a fraction of this total.
The 50 per cent level is half of 100 pips, so 50 pips. The 38.2 per cent level is 38.2 pips, which rounds to 38 pips. The 61.8 per cent level is 61.8 pips, which rounds to 62 pips.
These distances are measured from one end of the move. You choose the end based on the direction of the move. For a rise, you measure down from the top. For a fall, you measure up from the bottom.
Calculate the three distances
For a rise from 1.0800 to 1.0900, the top is 1.0900. The 50 per cent level is 1.0900 minus 50 pips. One pip is 0.0001, so 50 pips is 0.0050. The level is 1.0850.
The 38.2 per cent level is 1.0900 minus 38 pips, which is 1.0862. The 61.8 per cent level is 1.0900 minus 62 pips, which is 1.0838. Check each subtraction carefully.
If the move had been a fall from 1.0900 to 1.0800, you would measure up from the bottom. The 50 per cent level would still be 1.0850, but the 38.2 per cent level would be 1.0838 and the 61.8 per cent level would be 1.0862.
Convert to prices
Write the three prices on the chart: 1.0862, 1.0850 and 1.0838. These are the lines many people watch. They are not magic. They are just where orders may gather.
Price can cross these lines without stopping. It can also turn before reaching them. The lines do not force price to do anything. They only show where other people might act.
If you use a different move, the numbers change. Always recalculate from the actual start and end of the move you are marking.
Price the distance
To know what a move is worth in shillings, you need the pip value. On 0.10 lots of EUR/USD, one pip is 1 unit of the quote currency. The quote currency is USD.
If one USD is worth about KSh 129, then one pip is about KSh 129. A 40 pip move is 40 times that, which is about KSh 5,160. The exact figure depends on the conversion rate at the time.
Brokers differ in how they round prices, whether they charge a spread or a commission, and what conversion rate they use for the shilling. Check the contract specification and the fee schedule on your own platform before you size anything.
Decide both outcomes in advance
Before price reaches a line, decide what you will do if it turns there. Also decide what you will do if it passes straight through. Write both decisions down.
If you only plan for a turn, you will be lost when price crosses. If you only plan for a cross, you will miss a turn. Having both plans keeps you from reacting in the moment.
The grid is a map, not a signal. It shows where others might act. Your plan tells you what you will do regardless of what they do.
One move, three levels, and the cost of a pip
| Step | Amount | Note |
|---|---|---|
| Move used | 1.0800 to 1.0900 | a completed rise of 100 pips on EUR/USD |
| 38.2 per cent level | 1.0862 | 1.0900 minus 0.00382, which is 38.2 per cent of 100 pips |
| 50 per cent level | 1.0850 | the midpoint of the move |
| 61.8 per cent level | 1.0838 | 1.0900 minus 0.00618, which is 61.8 per cent of 100 pips |
| One pip on one standard lot | 10 units of the quote currency | 100,000 x 0.0001, then converted at the current rate |
| One pip on 0.10 lots | 1 unit of the quote currency | one tenth of the standard lot figure |
| One pip on 0.10 lots in KSh | about KSh 129 | 1 unit of the quote currency converted at about KSh 129 to the unit; the exact figure moves with the rate |
Brokers differ in how they round prices, whether they charge a spread or a commission, and what conversion rate they use for the shilling. Check the contract specification and the fee schedule on your own platform before you size anything.
Doing it once, step by step
Follow these steps to place a Fibonacci grid on a completed EUR/USD move and work out what a pip costs in shillings.
- 01
Identify a completed move
Find a clear start and end on the chart. For example, a rise from 1.0800 to 1.0900. Make sure the move has finished before you draw anything.
- 02
Count the pips
Subtract the start from the end to get the size in pips. 1.0900 minus 1.0800 is 100 pips. Write this number down.
- 03
Calculate the levels
Multiply the total pips by 0.382, 0.5 and 0.618. For 100 pips, that gives 38.2, 50 and 61.8 pips. Round to whole pips if you prefer.
- 04
Convert to prices
For a rise, subtract each distance from the top. 1.0900 minus 50 pips is 1.0850. Do the same for the other two levels.
- 05
Price a pip in shillings
Check the pip value for your lot size. On 0.10 lots, one pip is 1 USD. Multiply by the KSh rate, for example 129, to get about KSh 129 per pip.
- 06
Write your plan
Decide in advance what you will do if price turns at a line and what you will do if it passes through. Keep the grid fixed and follow your plan.
The mistake most people make here
The common mistake is to treat a Fibonacci level as a place where price must turn. It is only a line that many people have drawn, so it can be crossed, ignored or overshot. People also redraw the grid every few minutes to make it fit whatever price is doing, which removes the only useful part of the exercise. Draw the grid once on a clear completed move and leave it alone. Then decide in advance what you would do if price reaches the line and what you would do if it passes straight through.Check yourself
A completed EUR/USD move runs from 1.0800 to 1.0900. Where is the 50 per cent level, and how many pips is that from the top of the move?
The move is 100 pips. Half of 100 is 50 pips. The 50 per cent level is 1.0900 minus 0.0050, which is 1.0850. That is 50 pips below the top.
On 0.10 lots of EUR/USD, one pip is 1 unit of the quote currency. If that unit is worth about KSh 129, what is the value of a 40 pip move in KSh?
40 pips x 1 unit per pip = 40 units of the quote currency. 40 x KSh 129 = about KSh 5,160. The exact figure depends on the conversion rate at the time.
Questions that come up next
Why do these particular percentages get used instead of round numbers like a quarter or a third?
The numbers 38.2, 50 and 61.8 come from a sequence that has been written about for centuries. Traders adopted them as a shared set of fractions, so the same levels appear on many charts. The 50 per cent line is not from that sequence at all; it is simply the halfway point of the move, and it is included because so many people watch it. The usefulness comes from the sharing, not from the numbers themselves.
Should I use a different grid on a four-hour chart than on a five-minute chart?
You can, but each grid must be drawn on one clearly completed move. A move on a five-minute chart is small and finishes quickly, so the lines sit close together. A move on a four-hour chart covers more pips, so the same percentages spread further apart. The arithmetic is identical. What changes is how much noise sits between the lines.
What happens when two of the lines fall very close to each other?
When a move is small, 38.2 and 50 per cent can land only a few pips apart. On EUR/USD, one pip is 0.0001, so a 40 pip move puts the 50 per cent line 20 pips from the top. Two lines a few pips apart do not mark two separate decisions. Treat them as one zone and note that the spread you pay also lives inside that gap.
How do I know if the move I am marking has really finished?
You do not know for certain, and that is the honest answer. A move looks complete when price has turned and travelled a clear distance in the other direction. If you mark a move that is still running, the end point keeps shifting and your lines become meaningless. Wait for a visible turn before you draw anything.
Does the cost of a trade change how I should read these levels?
It does. Suppose your platform charges a spread of 1 pip on EUR/USD. A line 20 pips away is really 19 pips of movement for you. Brokers differ in how they round prices, whether they charge a spread or a commission, and what conversion rate they use for the shilling. Check the contract specification and the fee schedule on your own platform before you size anything.
If price passes straight through a line, was the grid wrong?
No. The grid only marks where some orders may sit. It never claimed price would stop there. Price can cross, ignore or overshoot any of the three lines. What matters is that you decided in advance what you would do in each case.
The words used on this page
- Fibonacci grid
- A set of lines drawn between the start and the end of one completed price move. It divides that distance into fixed parts, such as 38.2, 50 and 61.8 per cent. The lines are positions on the chart, not forecasts.
- Pip
- The smallest common step in a currency price. On EUR/USD, one pip is 0.0001, so a move from 1.0800 to 1.0900 is 100 pips. Pip values are used to measure both the move and the cost of a trade.
- Standard lot
- A fixed trade size used as a reference point when quoting pip values. On a standard lot of EUR/USD, one pip is 1 unit of the quote currency. Smaller sizes, such as 0.10 lots, move that value in proportion.
- Spread
- The gap between the price at which you can buy and the price at which you can sell. It is a cost you pay on entering a trade. Brokers set it differently, so the figure varies between platforms.
- CMA
- The Capital Markets Authority, the body that regulates financial markets in Kenya. Rules on what a firm may offer and how it must present risk differ from country to country. Always check which regulator, if any, supervises the platform you use.
What to take away
- A Fibonacci grid divides one completed move into fixed parts; it does not predict where price will go.
- Draw the grid once on a finished move and leave it alone; redrawing it removes the only useful part.
- The lines matter because many people watch the same levels, so orders may gather near them.
- Decide in advance what you will do if price reaches a line and what you will do if it passes through.