Learning Center - Fibonacci Extensions (2024)

FAQs

What is the best Fibonacci extension level? ›

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%).

Not always accurate: Like any other technical analysis tool, Fibonacci extensions are not always accurate, and the price may not follow the projected extension levels.

To use 3-point Fibonacci extensions, traders must identify three points on a price chart: the initial low (point A), the subsequent high (point B), and the pullback low (point C). Traders then use the Fibonacci sequence to calculate potential price targets beyond the initial move.

The 38.2% level is the single most important retracement and is the level we use for the "Golden Rule". This rule being, " any market that is going to keep its current trend must hold 38.2%". As long as it does the trend will continue and it should make new highs/lows from that retracement.

The important levels are 61.8% (a_n-1 / a_n), 38.2% (a_n-2 / a_n), and 23.6% (a_n-3 / a_n). There are other important levels like 78.6% and 50%, which are not Fibonacci ratios but are nonetheless important.

As per the Fibonacci retracement theory, after the upmove one can anticipate a correction in the stock to last up to the Fibonacci ratios. For example, the first level up to which the stock can correct could be 23.6%. If this stock continues to correct further, the trader can watch out for the 38.2% and 61.8% levels.

Every foreign exchange trader will use Fibonacci retracements at some point in their trading career. Some will use them just some of the time, while others will apply them regularly.

Whereas Fibonacci retracement measures a move to find levels to look for price to retrace into, Fibonacci expansion measures a move to project levels in the direction of the primary move that price is likely to move into in future. The Fibonacci extension tool has 3 points instead of 2.

To draw Trend-Based Fib Extension, three points needed. Once the three points are set, the level lines are drawn up to Fibonacci sequence. The first point chosen is the start of a move, the second point is the end of a move, and the third point is the end of the retracement against that move.

How do you use Fibonacci extension to profit? ›

The most commonly used Fibonacci extension levels are 138.2 and 161.8. The rules for take profit orders are very individual, but most traders use it as follows: A 50, 61.8 or 78.6 retracement will often go to the 161 Fibonacci extension after breaking through the 0%-level.

You can calculate Fibonacci retracement levels by completing the following steps: Multiply the difference between points one and two by any of the ratios desired, such as 1.618 or 0.618. This gives you a dollar amount. If projecting a price move higher, add the dollar amount above to the price at point three.

The 61.8% level, in particular, is frequently referred to as the Fibonacci retracement golden ratio, owing to its significance in both nature and financial markets. Traders commonly use these areas to anticipate where the price may reverse, thus providing strategic entry and exit points.

22.6%, 38.2%, 50%, 61.8% and 78.6% are the most popular and officially used retracement levels. The best time frame to identify Fibonacci retracements is a 30-to-60-minute candlestick chart, as it allows you to focus on the daily market swings at regular intervals.

A Fibonacci retracement forecast is created by taking two extreme points on a chart and dividing the vertical distance by Fibonacci ratios. 0% is considered to be the start of the retracement, while 100% is a complete reversal to the original price before the move.

The two key Fibonacci ratios are 38.2% and 61.8%. When a price breakout finally occurs, usually the price will move significantly outside of the 38.2% and 61.8% ratios. The MACD is one of the most widely used technical analysis oscillators and can confirm almost perfectly the Fibonacci Retracement levels.

The best time frame to identify Fibonacci retracements is a 30-to-60-minute candlestick chart, as it allows you to focus on the daily market swings at regular intervals.

The Fibonacci Sequence and Ratios:

When dividing two adjacent numbers in the sequence, various ratios emerge, with the most significant ones being 61.8%, 38.2%, 23.6%, and 50%. These ratios are then used in the context of price movements in financial markets, including cryptocurrencies.

Traders use Fibonacci retracement levels to identify potential support and resistance levels where an asset's price may find a floor or ceiling after a significant move up or down. Fibonacci extensions can be used to project potential profit targets by applying the Fibonacci ratios to the previous price swing.