I just noticed that most people who start trading often talk about Fibonacci, but they don't really understand what it is and how to use it. Today, I will share more comprehensive knowledge about this tool.

A simple example of Fibonacci is the sequence of numbers 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144... where each number is the sum of the two previous numbers. Its magic lies in the fact that this ratio appears throughout nature, from seashells and sunflower patterns to stock and forex price movements.

When applied to trading, advanced Fibonacci helps us identify entry points and target prices more accurately. There are five main patterns you need to know.

The first is Fibonacci Retracement, used to find the price correction points. To use it, draw lines connecting the lowest and highest points. The system will display levels at 23.6%, 38.2%, 50%, 61.8%, which are likely support and resistance levels. When the price retraces back, it often tests these levels before deciding whether to continue downward or not.

Fibonacci Extension is used to find target prices when the price breaks out. Important levels are 113.6%, 127.2%, 161.8%, 200%. If you buy at the retracement level, the extension helps indicate how far the price might run.

There are three other tools: Fibonacci Projection (combining Retracement and Extension), Fibonacci Timezone (based on time), and Fibonacci Fans (using both price and time).

So, how do you use them? I usually start by analyzing the trend with EMA. If the price is above the EMA(50), it indicates an uptrend. During a correction, I place Fibonacci Retracement and wait for the price to test support at 23.6% or 38.2%. Then, I look for signals from other indicators, such as RSI divergence. If clear signals appear, I enter the trade.

An important point is that Fibonacci should not be used alone. It must be confirmed with other indicators. I like to combine it with Price Action because it can clearly indicate candlestick reversal points. When the price hits Fibonacci support or resistance and a Doji candlestick forms, that’s a good signal.

The advantage of advanced Fibonacci is that it’s easy to use and can be integrated with many tools. However, its downside is that it relies on interpretation—different traders might see support and resistance levels differently. Moreover, sometimes prices do not perfectly align with the expected ratios.

Remember, Fibonacci is just a tool to assist, not a foolproof method. To maximize its effectiveness, combine it with risk management, setting stop-loss points, and studying price patterns in depth. Try drawing Fibonacci lines on real charts; it will help you visualize and understand the market better.