Fibonacci Ratios and Impulse Waves

Fibonacci Ratios and Impulse Waves


Usually, a correction tests one of the Fibonacci levels of the previous wave. The most common levels are 0.236, 0.382, 0.5, 0.618, 0.786. The last one is √0.618, which quite often turns out to be a useful level. As we already know for the previous article, there's such a thing like alternation, which means there's a special relationship between waves two and four of an impulse. One of these corrections could be sharp, and another one expresses itself in a sideways shape. At this point, we could use Fibonacci levels as a helpful tool, so let's examine some examples.

The chart below represents a classic relation between the second and fourth waves. Wave ((ii)) reached the 0.618 level while wave ((iv)) achieved just the 0.382 level of the wave ((iii)). In most cases, the second wave is deeper in relation to the preceding wave than the fourth wave. Thus, in most cases, we should watch the 0.618 level as the main target for the second wave, but there're always some exceptions and these guidelines are not written in stone.

a classic relation between the second and fourth waves

As mention above, the 0.786 level could also be a target. The next chart shows the case exactly. Wave ((ii)) and then wave (ii) finished on the 0.786 levels and both of them were a departure point for a bearish wave. At the same time, both waves (iv) and ((iv)) retraced only 0.236 of the previously formed third wave. So, that's another example of how alternation works.

Which level we should pick as a target

Even though the 0.618 level is the primary target for wave two, we should watch a structure of the correction as well. So, we should only consider wave two as ended when we have two factors on board such a finished correction structure and a pullback from one of the Fibonacci levels. This approach reduces the risks of premature opening trades and losses as consequences of that.

Let’s have a look at wave ((iv)), which took the form of a triangle. The ending of this pattern tested the 0.236 level, which kicked off a downward five-wave rally. This shows that we should match the ending of a triangle and the Fibonacci levels, but not the internal parts of the pattern.

wave, which took the form of a triangle

If a rally is that strong, waves two could be weak. The next chart represents this case. Both waves (ii) and ii reached just the 0.382 levels and the market continued rising. Again, it's all about the form. If we have a three-waves price movement, which we could consider as a complete correction, and then a pullback from the 0.382 level happens, then it could be enough for wave two. On the other hand, we should remember about the possibility to have a more prolonged correction as a double zigzag. Thus, whatever pattern or pullback you see, there's always no reason to forget about the risk management.

If a rally is that strong, waves two could be weak

Sometimes, wave two balances between the 0.5 and 0.618 levels. If there is a couple of pullbacks from these levels, that brings more evidence that's wave two is about to end. Also, during extension, it's common to have relatively small wave two. As you can see on the chart below, wave (ii) ended on the 0.236 level as well as wave (iv). That's more common on the stock market, where we could have rallies like a rocket quite often, so in moments like that, the price simply has no time for deeper corrections.

chart wave (ii) ended on the 0.236 level as well as wave (iv)

Fibonacci Extensions of Motive Waves (Multiples)

We can use the Fibonacci Extension tool to predict the length of waves three and five. The most common target to the third wave is the 1.618 multiple of the first wave. The fifth wave tends to reach the 0.618 multiple of the third wave. Such classic relations you can see on the next chart.

wave tends chart

Sometimes, an extension in the third wave turns out to be so long and in this case, we should watch 2.618, 2 and 3.618 levels as possible targets. As you can see on the chart below, wave 3 finished between the 2.618 and 3.618 levels. Again, it all depends on the wave structure. Thus, if the third wave reached the 1.618 level, but there's no finished five-wave price movement, then it'll be logical to watch the next levels as a target.

chart wave 3 finished between the 2.618 and 3.618 levels

From time to time, 1 and 2 multiples are also could be useful. Wave (iii) of ((a)) on the next chart finished at 1 level, while wave (iii) of ((c)) achieved the 2 multiple levels. In both cases, the inner structure of these third waves was helpful to recognize a possible ending of these impulses.

Also, let's have a look at waves (i) and (v) of ((c)), which are equal. Usually, this happens if the third wave is more than 1.618 multiple, but again we should rely on the wave's structure first.

equal waves (i) and (v) of ((c))

The Bottom Line

 The Fibonacci relations are the core part of the Elliott Wave Principle. The structure of a developing wave could point out the appropriate Fibo level as a target, so we should always try to match the ongoing wave and the nearest level to achieve the best results.

Frequently asked questions

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to activate Level Up Bonus?

    Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.

Latest news

BTC skyrocketed as first crypto exchange goes public!

Coinbase Global Inc., the leading cryptocurrency exchange in the US, will go public on the Nasdaq index on April 14!

Will US inflation push USD further up?

The American inflation rate is announced on Tuesday at 15:30 MT. It’s an important event for traders as it will impact hugely currency pairs with the USD.

USD, gold, Alibaba and more on April 12

In this article, you'll find the latest news and tech analysis of EUR/USD, gold, and GBP/USD!

Deposit with your local payment systems

Learn more

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Follow us on Facebook


A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in 00:30:00

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera