Fibonacci Extension

Fibonacci Extension is a technical analysis tool that is used to identify potential price targets or levels of support and resistance beyond the standard Fibonacci retracement levels. It is an extension of the Fibonacci sequence and ratios.

The Fibonacci Extension tool is applied to a price chart by selecting three points: a swing low, a swing high, and a retracement level. The swing low is the starting point of an upward move, while the swing high is the peak of that move. The retracement level is the point at which the price temporarily reverses before continuing in the direction of the original trend.

Once these three points are selected, the Fibonacci Extension tool plots horizontal lines at various Fibonacci ratios (typically 0.618, 1.000, 1.618, 2.618, and 4.236) above the swing high. These ratios represent potential price targets or levels of support and resistance where the price may reverse or encounter significant price action.

Traders and analysts use Fibonacci Extension levels to determine potential profit targets or areas where the price may encounter resistance during an upward move. They can also be used to identify potential levels of support during a downward move.

The Fibonacci Extension tool is commonly used in conjunction with other technical analysis tools, such as trendlines, moving averages, and candlestick patterns, to confirm potential trade setups. It is important to note that Fibonacci Extension levels should not be used in isolation and should be combined with other forms of analysis for more accurate predictions.

In summary, Fibonacci Extension is a tool used in technical analysis to identify potential price targets or levels of support and resistance beyond the standard Fibonacci retracement levels. It is applied by selecting three points on a price chart and plotting horizontal lines at various Fibonacci ratios above the swing high. Traders use these levels to determine potential profit targets or areas of significant price action.