How To Use Fibonacci Extension Levels
Fibonacci Retracements are displayed by first drawing a trend line between two extreme points. A series of six horizontal lines are drawn intersecting the trend line at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, and 100%.
📍 How this indicator worksThe percentage retracements identify possible support or resistance areas, 23.6%, 38.2%, 50%, 61.8%, 100%. Applying these percentages to the difference between the high and low price for the period selected creates a set of price objectives. Depending on the direction of the market, up or down, prices will often retrace a significant portion of the previous trend before resuming the move in the original direction. These countertrend moves tend to fall into certain parameters, which are often the Fibonacci Retracement levels.
📍 CalculationFibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so on.
📍 What Are Fibonacci Extensions? Fibonacci extensions are a tool that traders can use to establish profit targets or estimate how far a price may travel after a pullback is finished. Extension levels are also possible areas where the price may reverse. Drawn as connections to points on a chart, these levels are based on Fibonacci ratios (as percentages). Common Fibonacci extension levels are 61.8%, 100%, 161.8%, 200%, and 261.8%.
🔹 Because Fibonacci ratios are common in everyday life, some traders believe these common ratios may also have significance in the financial markets.
🔹 Fibonacci extensions don't have a formula. Rather, they are drawn at three points on a chart, marking price levels of possible importance.
🔹 The Fibonacci extensions show how far the next price wave could move following a pullback.
🔹 Based on Fibonacci ratios, common Fibonacci extension levels are 61.8%, 100%, 161.8%, 200%, and 261.8%.
🔹 Extension levels signal possible areas of importance, but should not be relied on exclusively.
