The most-used tool in retail forex, and what it actually does
Draw a Fibonacci retracement from a swing low to a swing high and your platform marks horizontal lines at 23.6%, 38.2%, 50%, 61.8% and 78.6% of that move.
Traders then wait for price to pull back to one of them.
Before using it, be clear about why it works — because the usual explanation is wrong, and believing the wrong one leads to using it badly.
The mystical explanation, and the honest one
The claim: these ratios come from the Fibonacci sequence, which appears in nature, so markets obey them.
The problem: there is no mechanism connecting sunflower seed spirals to EURUSD. And note that 50% is not a Fibonacci ratio at all — it is included because it is the halfway point, which rather undermines the mathematical story.
The honest explanation is better, and more useful: Fibonacci levels work to the extent they work because an enormous number of traders draw the same lines on the same swings. Orders cluster there. When enough participants act on a level, the level produces behaviour — regardless of where the number came from.