Fibonacci Tool - how to use it

The use of the Fibonacci tool in trading is my preferred method for identifying potential levels of support and resistance in price movements. After years of trading, I have found that this approach offers valuable insights that many traders underestimate.

The magic of Fibonacci retracement

Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They derive from the mathematical sequence, with 23.6%, 38.2%, 50%, 61.8%, and 100% being the main levels.

How do I apply Fibonacci retracements

First, I identify the dominant trend. This tool works best in directional markets.

To draw it in bullish trends, I place the starting point at the minimum and drag it to the maximum. In bearish trends, I do the opposite. The platform automatically draws horizontal lines at the key levels where the price may retrace before continuing.

I always combine these levels with other indicators like MACD or RSI to confirm signals.

A real case

When I trade stocks in a bullish trend that rise from $100 to $200:

• Draw from $100 to $200
• I get levels at $123.60 ( 23.6% ), $138.20 ( 38.2% ), $150 ( 50% ) and $161.80 ( 61.8% )

If the price starts to pull back from $200, these levels could become bounce zones.

The Fibonacci extensions

I use them to project price targets after a retracement. They include levels such as 127.2%, 161.8%, 200%, and 261.8%.

To draw them, I first mark the main trend and then the retracement. The tool projects possible targets if the original trend resumes.

Practical application

Following the previous example, if the action retraces from $200 to $150 level 50% (, I draw from ) to $100 and then to $150. This shows me possible targets at $227.20 $200 127.2% ( and $261.80 ) 161.8% (.

) My personal approach

I have realized that many traders use Fibonacci mechanically, without understanding its true power. I always adjust the exact points according to the specific market and practice with historical data before applying it in real trades.

Sometimes levels fail spectacularly, but when combined with volume analysis and candlestick patterns, they become a formidable tool for anticipating price movements.