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Fibonacci extensions are used in technical analysis to achieve better forecasts, resulting in consistent trading gains. They are a powerful tool that can help you identify price targets, support and resistance levels, and potential market reversals. Below, we’ll look at what they are, what they indicate, how to draw them, and how Fibonacci extensions and Fibonacci retracements compare to each other.
Key Takeaways:
Fibonacci extensions are horizontal lines drawn on a price chart that indicate potential price levels for trend reversals or price targets.
The Fibonacci extension levels commonly regarded as strong support/resistance levels and potential price targets to consider are 0.618 (61.8%), 1.000 (100%) and 1.618 (161.8%).
An overlap or cluster of “fib extension” levels, combined with other support and resistance, provides a key level that often leads to at least a small reversal.
Fibonacci extensions are horizontal lines drawn on a price chart to indicate potential price levels where a trend may target or reverse. These levels are calculated by applying Fibonacci ratios (typically 0.618, 1.000, 1.272, 1.618 and 2.618) to a significant price swing or trend. Traders use these extensions to identify areas of support and resistance when deciding to take profit or make a reversal trade.