What is Fibonacci? How to draw the lines and apply Fibonacci in stock trading is easier than you think.

Many of you may have seen the word Fibonacci in trading circles but may not fully understand how it can help with trading. Today, we will help you understand this tool seriously enough to apply it effectively, including how to adapt Fibonacci for stocks to achieve better results than before.

Fibonacci is the hidden series of numbers in nature

Fibonacci is a sequence of interconnected numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987…

You can see this ratio hidden in natural beauty, such as seashell shapes, sunflower seed arrangements, and even in European art, where Leonardo da Vinci used this proportion in his works.

Although this ratio was discovered 400-200 years before Christ, it became known as the Golden Ratio(, used in art, design, and today in trading, Fibonacci stocks and other assets also use the same principles to predict price movements.

)Calculating Fibonacci is very simple

The calculation is done by adding the two previous numbers:

• 0 + 1 = 1
• 1 + 1 = 2
• 1 + 2 = 3
• 2 + 3 = 5
• 3 + 5 = 8
• 5 + 8 = 13

And so on.

The amazing part is when you divide these numbers, you get special values:

• Divide the previous number by the next ###34÷55( = approximately 0.618
• Divide the next number by the previous )377÷233( = approximately 1.618
• Divide a number by the number two places ahead )610÷1597( = approximately 0.382

These values become ratios used in Fibonacci tools for trading.

5 Fibonacci tools traders use to profit

) 1. Fibonacci Retracement — Find entry points

This tool is used to identify price correction points when the price reverses:

How to use: Drag the tool from the lowest point to the highest point. It will generate horizontal lines at 23.6%, 38.2%, 50%, 61.8%, 100%.

In Fibonacci trading for stocks or any assets: These lines serve as support ###in an uptrend( or resistance )in a downtrend(.

) 2. Fibonacci Extension — Find profit targets

This tool predicts the extension of the price when a breakout occurs:

How to use: Place the extension from swing high/low to the correction point. It shows extension levels at 113.6%, 127.2%, 141.4%, 161.8%, 200%, 261.8%.

3. Fibonacci Projection — Combine both sides

Combine the functions of Retracement and Extension to predict both correction and breakout in one go.

4. Fibonacci Timezone — Find reversal points based on time

Instead of looking at price, look at time. Draw vertical lines at 13, 21, 34, 55, 89, 144 candles to identify periods when the price may change trend.

5. Fibonacci Fans — View both price and time

Create angled lines through high/low points as support and resistance lines, helping to capture movements in steep uptrends or downtrends.

Try trading with Fibonacci Retracement in real scenarios

Scenario 1: Price reverses ###Pullback(

1. Price surges strongly upward then begins to correct.
2. Drag Fibonacci Retracement from the highest point in an uptrend to the low.
3. Levels 23.6%, 38.2%, 50% are good support zones. Traders buy gradually at these levels.
4. Place stop-loss below the 61.8% level )61.8%(.

) Scenario 2: Price breaks out ###Breakout(

1. Price breaks through strong resistance, entering a new trend.
2. Use Fibonacci Extension to find profit targets.
3. Levels at 161.8% or 200% are good exit points.

More accurate when combined with other tools

) Fibonacci + EMA ###Exponential Moving Average(

Tip: Use EMA to identify trend direction, then use Fibonacci to find entry points.

1. Identify if price is above/below EMA to determine trend.
2. Wait for correction, then apply Fibonacci Retracement.
3. Enter buy at 23.6%-50% levels when price remains below the outer EMA.
4. Take profit at Fibonacci Extension levels.

) Fibonacci + RSI ###Relative Strength Index(

Tip: Use RSI to confirm momentum strength.

1. Use Fibonacci Extension to find target resistance.
2. Look for RSI Divergence )higher price but lower RSI( ≈ sell signal.
3. Sell when price hits Fibonacci resistance with RSI Divergence.

) Fibonacci + Price Action

Tip: Use candlestick patterns to confirm Fibonacci levels.

1. Place Fibonacci Retracement.
2. Enter long/short when Doji, Pin Bar, or reversal patterns appear at Fibonacci support/resistance.

Pros and cons to know

Advantages

• Easy to use, clear values
• Helps predict price targets
• Widely used, creating self-fulfilling ###beliefs among traders, so prices tend to move(
• Adaptable to all timeframes and assets

) Limitations

• Subjective tool; different traders may place levels differently, leading to different results
• Using Fibonacci alone may lead to losses; combine with other tools
• Ratios are not guaranteed; market preferences vary

To trade Fibonacci well, practice first

1. Open real charts on trading platforms ###TradingView, broker platforms, etc.(
2. Drag Fibonacci Retracement on actual trend
3. Observe where the price actually breaks support/resistance and use these as reference points
4. Practice with demo accounts to gather experience before trading with real money

Summary: Fibonacci is not magic but a tool that brings order and guidance to trading stocks and other assets. When used correctly with other tools, it increases your chances of profit. Try it on a demo account first—no harm in practicing.