Fibonacci can be traded in reality. After drawing Fibonacci lines, where do you close your position?

Many traders feel confused about Fibonacci tools - drawing lines, what do they tell us? Where are support and resistance levels? When should we enter or exit? The answers are in this article.

What is Fibonacci and why do traders believe in it?

Fibonacci is a golden ratio hidden throughout nature - from seashells, sunflower stems, to facial proportions in humans. Humans have known this ratio since 2,400 BC, although the name “Fibonacci” only appeared in medieval Europe.

In trading circles, the belief that prices move according to natural laws has led many traders to use Fibonacci tools to predict support and resistance levels and determine entry and exit points.

Simple Fibonacci number calculation

The Fibonacci sequence is generated by adding the two previous numbers:

0, 1, 1 (0+1), 2 (1+1), 3 (1+2), 5 (2+3), 8 (3+5), 13 (5+8), 21 (8+13), 34, 55, 89, 144…

The magic lies in the special ratios embedded in this sequence:

• Divide a number by the next: 34 ÷ 55 → always about 0.618
• Divide a number by the previous: 377 ÷ 233 → always about 1.618
• Divide a number by the number two places ahead: 610 ÷ 1597 → about 0.382

These ratios (0.236, 0.382, 0.618, 0.786, 1.618) form the foundational levels used in Fibonacci tools across various platforms.

5 Fibonacci tools to identify price targets

( 1. Fibonacci Retracement - Draw support levels for buy entries

When an uptrend retraces, Fibonacci Retracement indicates where the price might stop falling, providing good buy points.

How to use:

• Connect the swing low to swing high from left to right
• Draw horizontal lines at: 0%, 23.6%, 38.2%, 50%, 61.8%, 100%
• In an uptrend, retracements often stop at these levels )acting as support(

) 2. Fibonacci Extension - Draw target sell levels when price breaks out

When price breaks through and continues, Fibonacci Extension helps identify profit-taking targets.

How to use:

• Connect Swing High → retracement point → extend the line
• Target levels: 113.6%, 127.2%, 141.4%, 161.8%, 200%, 261.8%
• Price often pauses or slows down at these levels

( 3. Fibonacci Projection - Combine support and target levels

Like combining Retracement + Extension using 3 points:

• Main trend start
• Retracement point
• Breakout point

This shows both resistance during correction and potential extension targets simultaneously.

) 4. Fibonacci Timezone - Find “when” the price changes

Instead of price, it predicts time using Fibonacci numbers on the X-axis ###time(:

• Mark 13, 21, 34, 55, 89, 144 candles
• Identify periods likely to see reversal or trend change

) 5. Fibonacci Fans - Draw diagonal lines

Use diagonal lines ###not horizontal### to find dynamic support and resistance:

• Connect lows and highs
• Draw lines at 38.2%, 50%, 61.8%
• Useful during high volatility

Applying Fibonacci in real trading

Scenario 1: Uptrend with pullback (Pullback)

Steps:

1. Draw Fibonacci Retracement from Swing Low to Swing High
2. Wait for price to drop and stop at 23.6%, 38.2%, 50%, or 61.8%
3. Enter long at these levels with a stop-loss below the swing low
4. Set profit targets when price breaks previous high, using Fibonacci Extension

Example ###AUD/USD(:

• Swing Low at 0.6500
• Swing High at 0.6700
• Draw Fibonacci retracement
• Price retraces to 61.8% )0.6618### ← buy point
• Not below 100% fib (0.6500) ← stop-loss
• Price breaks above 0.6700, extend to target 161.8% (0.6830)

( Scenario 2: Breakout with strong momentum )Breakout(

Steps:

1. Draw Fibonacci Extension from Swing High to retracement point
2. Observe targets at 113.6%, 127.2%, 141.4%, 161.8%
3. Enter long when price surpasses previous high
4. Exit at extension levels or when momentum wanes

Combining Fibonacci with other tools for better accuracy

) Method 1: Fibonacci + EMA (Exponential Moving Average)

Use EMA as trend confirmation + Fibonacci for entry points

Steps:

1. Set EMA(50) - if price above EMA = uptrend, below = downtrend
2. Draw Fibonacci retracement at current swing
3. Wait for price to bounce back, testing Fib 23.6%, 38.2%, 50% without crossing EMA
4. Enter long at Fib 38.2% if price remains above EMA → strong uptrend

( Method 2: Fibonacci + RSI )Relative Strength Index###

Use RSI to gauge momentum decline + Fibonacci to identify potential continuation

Steps:

1. Draw Fibonacci Extension for target levels
2. Watch RSI during price rally
3. When RSI shows divergence or starts to decline (Bearish Divergence) while price hits Fib extension → sell
4. Fib 127.2% + RSI decline = good short opportunity

Method 3: Fibonacci + Price Action (Candlestick patterns)

Use candlestick patterns (Doji, Pin Bar, Engulfing) to confirm Fibonacci signals

Steps:

1. Draw Fibonacci retracement
2. Price tests Fib 38.2%
3. If a Doji or Pin Bar pattern appears → confirms reversal at that level
4. Enter long confidently

Pros and cons of using Fibonacci

Advantages:

• Easy to use, clear support/resistance points
• Suitable for swing trading ###short- to medium-term(
• Works well in trending markets )Trending Market(
• Widely adopted, market respects these levels

Disadvantages:

• Using only Fibonacci is insufficient → combine with other tools
• Price may “skip” levels without stopping
• In ranging markets )Range-bound###, false signals may occur
• Requires proper drawing skills and understanding of swings (correctly identifying swing points)

Tips for accurate Fibonacci drawing

1. Identify clear swings - avoid random points
2. Draw from left to right - always connect previous to recent swing
3. Don’t draw on every wave - focus on major swings
4. Use multiple timeframes - check Fibonacci on 4-hour + daily charts for accuracy
5. Combine with other levels - round numbers like 0.6700, 0.6800 + Fibonacci levels strengthen support/resistance

Summary

Fibonacci is not an exact science but a tool to increase probabilities of finding good support/resistance levels. The key points:

• Don’t rely on just one indicator; combine with EMA, RSI, Price Action
• Draw levels correctly - identify clear swings and draw in the right direction
• Plan your entry and exit beforehand, including Stop-Loss and Targets
• Practice on demo accounts before real trading

Try drawing Fibonacci levels on your trading platform from real high and low points on candlesticks. You’ll notice that 38.2% and 61.8% levels often get hit, demonstrating the power of the golden ratio hidden in trading markets.