I've just noticed that most traders probably still don't fully understand Fibonacci in depth. Even though they've heard the name before, this tool is truly popular, but many may not know the correct way to use it.

Actually, Fibonacci is a series of numbers connected since 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144... and so on, where each number is the sum of the two previous ones. The interesting part is that these ratios appear widely in nature, from seashells and leaves to Leonardo da Vinci's paintings. The Fibonacci sequence was discovered over 400-200 years before Christ by Indian mathematicians.

What makes Fibonacci special is its astonishing property: when you divide one number by another, you always get the same ratio. For example, 34 divided by 55 equals 0.618, or 377 divided by 233 equals 1.618. These ratios are called the Golden Ratio, which is considered a natural law hidden in everything.

This is what makes using Fibonacci in trading so interesting, because traders believe that asset prices move according to the same natural laws. Therefore, we can use these ratios to find support and resistance levels, entry points, and price targets.

There are different types of Fibonacci tools used in trading. The first is Fibonacci Retracement, which is used to find the price pullback points during a correction. We draw this tool connecting the lowest point to the highest point, and it will display horizontal lines at 23.6%, 38.2%, 50%, 61.8%, and 100%, which often serve as support and resistance.

The Fibonacci Extension is used to find target prices when the price breaks out forward. This tool calculates extension levels at 113.6%, 127.2%, 141.4%, 161.8%, 200%, etc., helping us set profit targets.

There’s also Fibonacci Projection, which combines Retracement and Extension to show both retracement and extension levels simultaneously. Fibonacci Timezone uses vertical lines to indicate potential reversal periods, and Fibonacci Fan calculates both price and time.

In practice, when the price pulls back (Pullback), I use Fibonacci Retracement by drawing from the Swing Low to Swing High in an uptrend, or from Swing High to Swing Low in a downtrend. I wait for the price to approach support or resistance at 23.6%, 38.2%, or 50% before entering a trade.

When the price breaks out forward, I switch to Fibonacci Extension to find profit-taking targets. This tool helps me know where the price might reach.

The advantage of Fibonacci is that it’s easy to use, straightforward to read, and can be combined with many other tools. The downside is that it’s somewhat subjective; results depend on who uses it and how. Some traders profit from it, others may incur losses.

That’s why I never rely solely on Fibonacci. I often combine it with EMA (Exponential Moving Average) to confirm the trend, or with RSI (Relative Strength Index) to see if the price is overbought or oversold. Sometimes, I use it with Price Action to wait for candlestick reversal patterns for confirmation.

For example, if AUD/USD is in an uptrend, I make sure the price stays above the EMA(50). When the price retraces, I draw Fibonacci Retracement and wait for the price to approach support at 0.236 or 0.382, then look for Doji candles or other reversal patterns. If they appear, I enter a buy.

Using Fibonacci correctly requires combining it with other tools; you shouldn’t rely on it alone. Its accuracy improves significantly when combined with other indicators or Price Action patterns.

Setting up this tool on a trading platform is very easy. Just click the Fibonacci Retracement icon on the toolbar, then drag to connect your chosen points. To customize settings, click on the tool and adjust as needed.

In summary, Fibonacci is a widely popular tool among traders—from retail traders to large funds. But it shouldn’t be used alone. Combining it with other tools yields much better results. If you want to learn more, try analyzing real charts and experimenting with Fibonacci—it will help you understand the bigger picture much better.