Fibonacci ratios are central to Elliott Wave — they define where waves are likely to end and project targets for the next wave. Key retracement levels (0.382, 0.5, 0.618, 0.786) identify where pullback waves (2, 4, B) are likely to end. Extension levels (1.272, 1.618, 2.618) project where motive waves (3, 5, C) are likely to reach.
Key retracements: 0.236, 0.382, 0.5, 0.618, 0.786. Key extensions: 1.0, 1.272, 1.618, 2.0, 2.618, 4.236. Wave 2 typically retraces 0.5-0.618 of Wave 1. Wave 3 extends 1.618× Wave 1. Wave 4 typically retraces 0.382 of Wave 3. Wave 5 ≈ Wave 1 or 0.618× of Waves 1-3 combined.
Enter at 0.618 retracement of Wave 1 for Wave 3, Enter at 0.382 retracement of Wave 3 for Wave 5, Cluster zones: where multiple Fibonacci levels from different measurements converge, OTE (Optimal Trade Entry): 0.62-0.786 zone
Wave 3 target: 1.618 extension of Wave 1. Wave 5: 1.0 extension of Wave 1 from Wave 4 low. Wave C: varies by pattern type. Fibonacci cluster targets (multiple extensions converging).
Apply Fibonacci to the wave you're measuring on the timeframe the wave is visible
Fibonacci levels work best in conjunction with other Elliott Wave rules and price action confirmation. A 0.618 retracement alone is not a trade signal — it becomes one when combined with wave structure, divergence, and price action at the level.
After a five-wave impulse, the market enters a three-wave correction labeled A-B-C. Corrective waves move against the larger trend and take many forms: zigzags (sharp A-B-C), flats (sideways A-B-C), and triangles (contracting A-B-C-D-E). Corrections are always three-wave structures (or combinations of threes). Identifying correction completion signals the next impulse wave entry.
The impulse wave pattern consists of five waves in the direction of the larger trend: three motive waves (1, 3, 5) separated by two corrective waves (2, 4). This is the core structure of Elliott Wave Theory. Wave 3 is typically the longest and most powerful, never the shortest. Wave rules: Wave 2 cannot retrace beyond the start of Wave 1. Wave 4 cannot overlap with Wave 1 territory (except in diagonals).
Elliott Waves are fractal — the same five-wave impulse and three-wave corrective patterns appear at every scale, from monthly charts down to tick charts. Wave degrees label these nested patterns: Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette, Sub-Minuette. Understanding multi-degree analysis allows traders to see how smaller waves fit into larger structures.
Complex corrections in Elliott Wave theory combine two or three simple corrective patterns (zigzags, flats, or triangles) connected by intervening waves labelled X. These structures — double and triple zigzags, double and triple threes — create extended sideways or slightly trending corrective phases that consume time and frustrate traders before the larger trend resumes.