Fibonacci values in trading: a tool that many people use but not everyone understands

If you’ve been tracking stock prices or trading crypto for a while, you’ve probably seen numbers like 0.618, 1.618, 23.6%, 38.2%, 61.8% frequently appear on technical charts. These mysterious ratios come from Fibonacci values that are widely used in trading worldwide. However, most people don’t know how these are calculated or how to utilize them effectively.

What Are Fibonacci Ratios: The Magical Number Sequence

Fibonacci numbers are a sequence connected by natural rules: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987…

Finding the next number is very simple—just add the two previous numbers, for example, 5 comes from 2+3, 8 from 3+5, 13 from 5+8, and so on.

The magic lies in the fact that when these numbers are used in various calculations, they always produce constant ratios:

• 0.618 — obtained by dividing a number by the following number, e.g., 34 ÷ 55(
• 1.618 — obtained by dividing a number by the previous number, e.g., 377 ÷ 233)
• 0.382 — obtained by dividing a number by the number two places ahead, e.g., 610 ÷ 1597(

Fibonacci was not discovered recently. It is said that Indian mathematicians devised this sequence 400-200 years before Christ. Although the name “Fibonacci” was assigned in medieval Europe, this sequence has been used for centuries in architecture, art, and nature—and now it also helps traders.

Why Fibonacci Ratios Are Useful in Trading

If you observe nature deeply, you’ll find these ratios everywhere—spirals of shells, leaves on trees, even proportions of the human face.

Market prices behave similarly—resulting from the competition between buying and selling forces. Their patterns often follow natural laws. Traders who understand Fibonacci ratios can predict when prices might break through certain levels or bounce back.

5 Essential Fibonacci Tools to Know

) 1. Fibonacci Retracement — Find buy/sell points when prices pull back

This is the most commonly used tool, which measures the retracement of price movements to help you enter trades at optimal points.

How to use: Drag from the lowest point to the highest point (or vice versa in a downtrend). You will see horizontal lines at 0%, 23.6%, 38.2%, 50%, 61.8%, 100%.

In an uptrend, if the price drops below these lines, they act as support; in a downtrend, they act as resistance.

2. Fibonacci Extension — Find target prices after breakout

When price moves beyond a retracement zone, the extension helps predict how far the price might go.

How to use: Connect the swing high/low to the retracement point. You will get target levels at 113.6%, 127.2%, 141.4%, 161.8%, 200%, 261.8%.

( 3. Fibonacci Projection — View both sides )retracement + breakout###

This tool combines Retracement and Extension, helping you see how much a price can retrace and how far it can go after a breakout.

4. Fibonacci Time Zones — Forecast reversal timing

If Retracement/Extension monitors price, Time Zones monitor time. This creates vertical lines at 13, 21, 34, 55, 89, 144, 233 candles, indicating potential turning points.

( 5. Fibonacci Fans — Combine price + time in sloped lines

Unlike other tools that use horizontal or vertical lines, Fans use Fibonacci ratios to draw sloped lines that act as support and resistance.

How to Calculate Fibonacci Levels for Traders

If you want to do it manually:

1. If the price drops, calculate support as: Support = )High - Low### × 0.618 + Low
2. Similarly, use 0.382, 0.50, 0.236 for other retracement levels.
3. For Extension: Target = (High - Low) × 1.618 + High ###in an uptrend(

But don’t worry—most modern trading platforms have these tools built-in. Just drag and let the software do the calculations.

Applying Fibonacci: Effective Trading Strategies

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

How to do it:

1. Add an EMA###50( to your chart to identify the main trend.
2. Wait for a pullback, then use Fibonacci Retracement to find support/resistance.
3. Enter buy orders at Fibo 23.6%, 38.2%, 50% as long as the price stays above the EMA)or short in the opposite direction in a downtrend(.

Example: Trading AUD/USD on a 15-minute chart

• Price rises strongly from 0.6400 to 0.6550
• Draw Fibonacci Retracement
• Price pulls back, consider going long at Fibo 0.382 )around 0.6480( with EMA supporting
• Set stop-loss below Fibo 0.618

) Strategy 2: Fibonacci + RSI (Relative Strength Index)

How to do it:

1. Add RSI###14( to your chart.
2. Use Fibonacci Extension to identify target support/resistance.
3. When price hits the Extension resistance and RSI shows Bearish Divergence )price makes a new high but RSI makes a lower high(—that’s a sell signal.

Why: RSI indicates momentum is waning even as price tries to go higher. Combining with Fibonacci helps pinpoint where the breakout might fail.

) Strategy 3: Fibonacci + Price Action (Candlestick Patterns)

How to do it:

1. Use Fibonacci Retracement to mark support/resistance.
2. Wait for price to approach Fibo lines.
3. When reversal candlestick patterns appear ###Doji, Pin Bar, Engulfing(—enter trades.

Why: Fibonacci levels highlight key areas where traders focus, and Price Action confirms whether the market truly reacts at those points.

Advantages of Fibonacci

• Easy to use — no need for complex calculations if software is available
• Universal — works across all timeframes and markets
• Shared language — traders worldwide recognize these ratios, creating common reference points
• Works well with other tools — complements oscillators and trend indicators

Limitations of Fibonacci

• Needs confirmation — should be used with other tools, not alone
• Subjective points — different traders may choose different highs/lows, leading to varied results
• Choppy markets — in sideways or unpredictable markets, Fibonacci is less effective

FAQ: Common Questions

Does Fibonacci really work?
It works if used correctly, with about 60-70% accuracy when combined with other consistent tools.

Should I use Retracement or Extension first?
If a new trend emerges, start with Retracement to find entry points. After entering, use Extension to set exit targets.

Is 0.618 the most important level?
0.618 and 0.382 are the most flexible, but 0.5 also performs well in fast-moving markets.

Summary

Fibonacci ratios are not an exact science, but they are not just superstition either. They are tools that help traders identify key levels. When many traders see the same levels, market behavior tends to cluster around those points.

Try applying Fibonacci on your trading charts to see if it clarifies trends and potential turning points. Then, let me know how it works for you.