I just noticed that many people still don't really understand what Fibonacci is, even though this tool is available on almost all trading platforms and is widely used.

Actually, Fibonacci is a series of numbers that are interconnected, including 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89... which are generated by adding the two previous numbers together. This ratio appears frequently in nature, from seashells, leaves, to human proportions. Interestingly, it also shows up in the movement of stock prices and foreign exchange rates.

What I like about Fibonacci is the mathematical relationships hidden within these numbers. No matter how you divide these numbers, you always get the same values, such as 34/55 ≈ 0.618 or 377/233 ≈ 1.618. Once you understand this, you'll see why Fibonacci is useful in trading.

Regarding its application, there are five main tools we use most often:

First is Fibonacci Retracement, used to find entry points when the price pulls back. It's simple: draw from the lowest point to the highest point, and you'll get horizontal lines indicating 23.6%, 38.2%, 50%, 61.8%, which are levels of support and resistance where the price is likely to reverse.

Second is Fibonacci Extension, used to identify target prices when the price breaks out. I mainly use it to set clear exit points.

Third is Fibonacci Projection, which combines Retracement and Extension. It helps analyze both short-term pullbacks and long-term extensions simultaneously.

Then there's Fibonacci Timezone, which uses vertical lines (on the x-axis) to indicate potential reversal periods, and Fibonacci Fans, which use both price and time.

Now, onto what I actually use in my trading:

In an uptrend with a pullback, I use Fibonacci Retracement by connecting the previous Swing Low to Swing High. I wait for the price to test support at 23.6%, 38.2%, or 50%. If the price stays above the 50 EMA, I gradually buy at these support levels.

When the price breaks out above the previous high, I switch to Fibonacci Extension to set target prices. Usually, I look at 161.8% or 200% levels to decide when to close positions.

My favorite method is combining Fibonacci with RSI. I use Fibonacci Extension to identify support and resistance levels, then check if momentum is weakening with RSI. If RSI shows divergence at Fibonacci resistance, it's a strong sell signal.

Another effective method is combining Fibonacci with Price Action. For example, if the price hits a Fibonacci resistance and forms a Doji or Double Top, that’s a clear sell signal.

Finally, I want to emphasize that Fibonacci works well because it’s widely used worldwide. This shared belief makes these ratios become common reference points among market participants. But remember, it’s just a supplementary tool. It should be combined with other indicators to generate more accurate signals. Try drawing Fibonacci levels on your charts and experiment—it's a great way to deepen your understanding.