Fibonacci Strategy: A Practical Guide to Identifying Key Levels in Financial Markets

▶ Fundamentals of the Fibonacci Method in Trading Operations

Financial markets rarely move in a straight line. After each significant move, retracements occur that traders use strategically. One of the most effective tools to anticipate these movements is analysis using Fibonacci levels, which helps identify zones where the price could stabilize before continuing its trend.

This technical analysis methodology combines mathematical proportions with market behavior. Traders apply it to currencies, stocks, cryptocurrencies, commodities, and indices, using it in both bullish and bearish movements, adapting it to any time frame.

? Mathematical origin of the golden ratio

Leonardo of Pisa, a 12th-century mathematician, described in his work “Liber Abaci” a numerical sequence where each term was the sum of the two previous ones (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…). From this series emerged the golden ratio: 1.618.

Ratios derived from these calculations generate the operational levels: 23.6%, 38.2%, 50%, 61.8%, and 76.4%. These percentages are not arbitrary but reflect the relationship between consecutive numbers as the series progresses. Accuracy increases significantly with longer time frames.

▶ Practical application of Fibonacci levels

? How they are drawn and what they indicate

The process is simple: draw a line from the last low to the last high (or vice versa in downtrends), always from left to right. The tool automatically generates horizontal levels that act as potential supports during corrections or as resistances during recoveries.

Professional traders leverage these levels for two main purposes:

• Entry: Determining where to open positions when the price retraces
• Risk management: Placing stop-loss orders and profit targets

? Confluences: improving reliability

Using only this method has limitations. Effectiveness exponentially increases when combined with other indicators such as exponential moving averages (EMA), trend lines, or volume analysis.

For example, if the 61.8% Fibonacci retracement level coincides with a 50-period moving average, the probability of a rebound is significantly strengthened.

▶ Practical cases of EUR/USD trading

? Long-term operation

In May, a clear downtrend was identified in EUR/USD. The high was at 1.09414 and a subsequent low was detected at 1.03489. When the market began to recover, the Fibonacci retracement was drawn.

The decisive confluence was a 50 EMA positioned near the 61.8% level in early June. A sell position was opened at 1.07139 with the following characteristics:

• Risk: 228 pips (SL at previous high of 1.09414)
• Target: 532 pips (using Fibonacci extensions)
• Result: Closed with profits at TP on July 5
• Duration: 43 days of exposure
• Gross return (with 0.01 lot): +53.2 USD net

This operation demonstrates effectiveness over longer horizons where Fibonacci levels act with greater precision.

? Intraday operation with multiple confluences

On June 17, while the daily analysis showed a bearish trend, the 1-hour chart displayed an upward retracement. An buying opportunity was identified at the 61.8% short-term Fibonacci level.

The strategy used two time frames:

• 1-hour Fibonacci (black) for entry: 1.04651
• Daily Fibonacci (orange) for target: maximum 1.06157

The risk-reward setup was established at 1:3:

• Entry: 1.04651
• Stop loss: 1.04250 (40 pips of risk)
• Target: 1.06011 (135 pips potential)
• Duration: 3 business days
• Gross return (with 0.05 lot): +62.5 USD net

Although the price briefly crossed 1.04441 (21 pips floating loss), the 61.8% level acted as support and the trade closed positively.

▶ Risk management according to Fibonacci levels

The depth of the retracement determines the strategy:

Shallow retracements (23.6% - 38.2%)

• Faster reversal back to the original trend
• Lower potential gains
• Controlled risk but limited reward

Deep retracements (50% - 61.8%)

• Longer consolidations
• Higher potential gains
• Requires greater volatility tolerance

A traditional trader typically places:

• Entry at 61.8%
• Take profit at 0% (trend maximum)
• Stop loss at 100% (start of the move)

This setup yields an approximate risk-reward ratio of 1:1.65, though it varies depending on the specific context.

▶ Fibonacci extensions: projecting larger targets

Beyond retracements, Fibonacci extensions answer the inverse question: if the price has already retraced, how far could it go? These projected levels (127.2%, 161.8%, 261.8%) allow setting ambitious targets when they confluence with other support or resistance levels.

In the long-term EUR/USD example, these extensions were used to calculate the TP at 1.01810, significantly optimizing the final performance.

▶ Is this methodology truly reliable?

Fibonacci retracement alone does not guarantee trading certainty. Its strength lies in being part of a broader system. When integrated with:

• Fundamental analysis
• Momentum indicators
• Chart patterns
• Volume confirmation

…reliability improves substantially.

? Final recommendations

Time frame: Larger frames (daily, weekly) provide more reliable signals than intraday charts.

Flexibility: With experience, traders discover that certain customized levels work better depending on the specific asset.

Practice: Demo accounts allow experimentation without real risk, gradually identifying which confluences and time frames generate consistent results.

Mastery of this tool is built through systematic observation, where each operation provides valuable feedback to refine the strategy.