Particularly in volatile markets, the price may completely bypass these levels, making them less reliable during periods of high volatility. Both Fibonacci extensions and Fibonacci retracements are tools derived from the Fibonacci series, but they serve different purposes in trading. Unlike extensions, expansions project the next wave based on the previous adjacent wave making them simpler to apply. Extensions, on the other hand, fibonacci extension formula require a mother trend to measure and the applicable ratios are then applied to estimate the next trend length after a retracement. Divergence refers to the situation when the price is moving in one direction, but a technical indicator, such as the RSI or MACD, is moving in the opposite direction. When using Fibonacci extensions, divergence can indicate that the impulsive move is losing momentum, signalling a potential trend reversal or slowdown.

Reciprocal sums

When you click the button, the indicator will be activated, and you will be able to draw the Fibonacci levels.

• Setting up Fibonacci extensions accurately is key to identifying price targets effectively.
• Soon, this major Fibonacci level turned into strong resistance and the uptrend reversed from here on.
• To practice these strategies without risking real capital, use the three-point calculation method shown in the Chart Examples 3.

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These elements tie back to the trend analysis strategies discussed earlier. Keep in mind that Fibonacci Extensions are less reliable in sideways or non-trending markets. In such cases, you’ll need confirmation from additional indicators 7. Use them alongside other tools to refine entries, exits, and stop-loss placements. Hence, it would be beneficial to use it in confluence with other trading tools such as support/resistance, moving average, RSI, etc., to avoid relying on it exclusively. Thus, the price moving aggressively through an extension level indicates its advancement towards the next Fibonacci level.

This systematic approach helps remove emotion from trading decisions and creates a more disciplined trading strategy. For best results, use Fibonacci extensions as part of a comprehensive trading strategy rather than in isolation. Combining them with other technical analysis tools like trend lines, moving averages, or momentum indicators can provide confirmation and increase the probability of successful trades. Look for confluence areas where multiple indicators suggest the same support/resistance level for the strongest signals. Fibonacci extensions are derived from the Fibonacci number sequence, which was popularised by the Italian mathematician Leonardo Fibonacci in the 13th century.

• To make the most of Fibonacci extensions, it’s crucial to know how to use them effectively in various market conditions.
• Since there is a certain margin of error in using graphical overlays to plot Fibonacci levels on a chart, using the web-based calculator will certainly provide more accuracy.
• In the case of Fibonacci extensions, confluence happens when Fibonacci retracement levels, extension levels, and other indicators like moving averages or trendlines meet at the same price point.
• Yes, Fibonacci extensions can be applied to any financial market (forex, stocks, cryptocurrencies, commodities) and any timeframe from 1-minute charts to monthly charts.
• Price pause at this area, and then the price breaks down to the 161.8% level where the price clearly finds support.

But, this assumes arithmetic scaling of the y-axis (the price axis), and investing isn’t arithmetic. Candlestick charts and price action are especially informative when trying to determine whether a stock is likely to reverse at the target price. Over the years, I’ve built a community of over 200,000 YouTube followers, all striving to become better traders. For precise extensions, you can use either the candlestick wicks or the real bodies of the candles. You can set an absolute or percent value to display beside the level. Reverses the direction of the fib extension (reflects it vertically).

In cTrader, the preset Fibonacci expansion tool is available in the toolbar that allows drawing the tool on the chart, moving it and configuring it to suit your needs. You can find a detailed description of how to use it in the Fibonacci tools section of this documentation. Fibonacci expansion is usually applied where the other methods of finding support or resistance are not applicable. If the price moves through an expansion level, it may continue moving towards the next. The price itself may not stop or reverse exactly at the level, but the area around it may be important. While Fibonacci retracement applies percentages to a pullback, Fibonacci expansions apply percentages to a move in the trending direction.

The Ultimate Fibonacci Trading Course 2025: A Comprehensive Guide to Fibonacci Retracements and Extensions

Fibonacci Extension is the tool to determine the targets after the price retracement using Fibonacci levels such as 61.8%, 100%, 161.8%, etc. Traders often adjust positions as the price reaches expansion levels by taking partial profits or moving stop-losses. Although expansion levels offer more conservative targets, they are ideal for managing risk and protecting gains. To get the best results, integrate Fibonacci extensions into a well-rounded trading plan. This should include proper position sizing and defined exit strategies. While these extensions provide reliable target levels, treat them as flexible guidelines rather than fixed rules, as explained in the Trend Trading and Advanced Methods sections.

Multiple Timeframe Setup

Participating in financial markets involves high risk, which can result in the loss of part or all of your investment. Follow the next section to receive the tool’s output in uptrends and downtrends. There is no guarantee that the price will grow or reverse at a specific Fibonacci expansion level. The price may move through many of the levels or not reach any of them.

There are various ways you can apply the Fibonacci formula in Forex trading. For example, there are Fibonacci Fans, Fibonacci Circles, Fibonacci Time Zone tools that are now basic features of any major reputable technical analysis platform. However, most traders start out using the Fibonacci formula by drawing either retracement levels or extension levels. Fibonacci in Trading is a method that applies Fibonacci ratios to analyze price movements, identify key support and resistance levels, and try to predict market retracements and extensions.

When the first line is drawn, its height is considered as a unit interval later on. The end of the second wave serves as a reference point for building an invisible vertical line. The corresponding lines are drawn from the reference point on the levels equal to 23.6%, 38.2%, 50%, 61.8%, 100%, 161.8% and 261.8%. When it comes to Fibonacci extensions, our primary focus is on identifying target levels. Remember, while Fibonacci retracements help us find entry points, Fibonacci extensions are all about pinpointing where to take profits.

The training programs are designed based on tools for traders of all levels, from “beginner to advanced.” Fibonacci extensions are not just theoretical; they provide practical price targets for traders. If the price extends to the 1.618 level, it’s another popular profit-taking point.

In figure 1, we have drawn the Fibonacci extension levels on a major uptrend’s high and low, then completed applying the tool by connecting the low of the retracement. When the uptrend resumed, it went above the 0.5 Fibonacci extension level but failed to close above it. Soon, this major Fibonacci level turned into strong resistance and the uptrend reversed from here on. As with fibonacci retracements, the price does not always respect extensions levels. Often the price will pass straight through these levels or reverse before them. The levels are still important because the price frequently does respect them.