Have you ever wondered why traders around the world like to use Fibonacci to find entry and exit points? I myself was initially confused by this tool, but once I understood it, it became one of the most practical tools in my arsenal.

In fact, Fibonacci isn't as complicated as it seems. It is a sequence of natural numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21... where each number is the sum of the two preceding ones. These numbers appear widely in nature, from seashells and leaves to patterns of price movement.

What makes Fibonacci interesting for traders is the special ratios hidden within these numbers, such as 0.618, 1.618, 0.382, etc. When applied to price charts, these ratios often become effective support and resistance levels.

Basic Fibonacci retracement starts by drawing the Fibonacci Retracement tool from the lowest point to the highest point of a trend (or vice versa). The tool displays horizontal lines at 23.6%, 38.2%, 50%, 61.8%, and 100%, which are points where the price often pauses or reverses.

I like to combine Fibonacci retracement with EMA to improve accuracy. For example, when the price is above the EMA(50), it indicates a strong uptrend. Then, waiting for the price to retrace to test the 38.2% or 50% Fibonacci level can be a good entry point.

Another tool is Fibonacci Extension, used to identify target prices when the price breaks out. Common levels are 161.8%, 200%, 261.8%. I often use it to set take profit levels.

For more advanced Fibonacci analysis, you can combine it with other indicators like RSI or Price Action to increase precision. For example, if the price hits the 161.8% Fibonacci Extension and RSI shows Bearish Divergence, it’s a strong sell signal.

The advantage of Fibonacci is that it’s easy to use, interpretable, and applicable across all timeframes and markets. The downside is that it can be subjective—different traders might draw Fibonacci lines at different points. Therefore, it’s best not to rely solely on Fibonacci but to confirm signals with other tools.

My recommendation is to practice drawing Fibonacci levels on real charts to see which levels the price responds to most. Everyone may have different experiences, but once you get a feel for this tool, it will definitely become part of your trading strategy.