Price Action & Setups

A retracement measures how much of a completed swing has been given back. Select a meaningful low and high using a fixed convention, such as wick-to-wick. Save the anchors before revealing what happens next. Redrawing until a level matches a bounce turns a measurement into hindsight.

For a rising swing, a retracement of fraction r lies at high − r × (high − low). For a falling swing, measure the upward retracement from its low. Chart tools may display labels in opposite directions, so check the actual prices rather than relying on a familiar percentage label.

The 0.618–0.65 area is often called the golden pocket. It is a region to observe within this method, not a law or an independent reason to trade. A nearby prior support zone may make the location worth watching, but you still need a trigger, invalidation and acceptable sizing.

Worked example

A hypothetical upswing runs from 100 to 120, a distance of 20. A 50% pullback is 110. The 61.8% level is 120 − 0.618 × 20 = 107.64; 65% is 107.00. The pocket is therefore 107.00–107.64, not 112.36–113.00.

Try it in replay

Calculate the 50%, 61.8% and 65% pullback levels for an upswing from 200 to 240. State what would stop you from using the drawing.

Check your reasoning

The levels are 220, 215.28 and 214.00. Pass on the measurement if the swing was selected only after seeing the reaction, if anchors are inconsistent, or if the underlying structure no longer matches the idea.