Fibonacci retracement explained, and how to write it as a condition
A Fibonacci retracement is a set of levels drawn between a swing low and a swing high, at fixed fractions of the distance between them. Drawn by hand, the levels depend on which two points you chose. SixOne8 chooses them for you, from the same confirmed swings its market-structure indicator finds, so a condition means the same thing every time it is evaluated.
What the levels are
After a move up from a swing low to a swing high, the retracement levels mark how much of that move has been given back: the 38.2 level is where price has retraced 38.2% of the rise, the 50 level half of it, the 61.8 level most of it. After a move down, the same levels are measured the other way. The fractions come from the Fibonacci sequence, which is where the name comes from and about the extent of the connection; what matters in practice is that they are fixed fractions a great many people draw.
The app picks the two swings the way its market structure indicator does: a swing is a high or low with no higher high (or lower low) within a set number of bars either side, and it is confirmed only once those bars have closed. The levels are drawn between the latest confirmed swing high and the latest confirmed swing low, and they update only when a new swing is confirmed. Between confirmations they do not move.
The settings
- Retracement level. Which fraction the condition reads: 23.6, 38.2, 50, 61.8 or 78.6. One per condition.
- Swing strength. How many bars either side a high or low must dominate to count as a swing, five by default. Larger picks bigger swings and so bigger retracements.
- Touch tolerance. How close a close has to be to the level to count as touching it, as a percentage of price. The touch and reject conditions use it.
Writing it as a condition
These are the comparisons SixOne8 offers, in the builder's own words. Price is the subject throughout.
- Price above / price below. The bar closed on that side of the level. A state.
- Price breaks above / breaks below. The previous close was on one side and this one is on the other. Judged on closes, so a wick through does not count. True only on that bar.
- Price touches. The close is within the tolerance of the level, from either side.
- Price rejects. Price came within the tolerance on the previous bar and closed away from the level on this one, without ever closing through it. The failed test: approached, did not take it. True only on the bar it turned away.
Auto Fib(61.8, swing 5) on 1h · price rejects
Read it as a sentence: on the 1-hour chart, price came to within the tolerance of the 61.8 retracement of the last swing and has just closed away from it. That is what the scanner evaluates at each hourly close.
What "automatic" changes
A retracement drawn by hand can always be made to fit: pick the swings that put a level where price turned, and the chart looks persuasive. Picking the swings by a fixed rule removes that freedom, which is the point. The levels will sometimes sit where no one would have drawn them, and the condition will fire on those too — and that is what makes the result of an entry check on it an honest measurement rather than a selection. If the rule's levels do nothing on your market, hand-drawn ones that seemed to work were probably the drawing, not the level.
Before you trust it
Run an entry check. It will tell you whether, on the market you care about, the moments this condition fired moved any differently from a random moment over the history tested. That is a fact about the past on that market, and it is the only kind of fact a test here produces.