Dictionary

Fibonacci extension

Projected levels beyond the end of a move, at ratios such as 1.272 or 1.618 of the prior swing, used as targets rather than entries.

Fibonacci retracement levels. Take one move from a swing low to a swing high and mark off fixed fractions of it — 23.6, 38.2, 50, 61.8 and 78.6 per cent. Traders watch those lines to see how much of the move a pullback gives back; here it stalls at 61.8 per cent.

Where fibonacci-retracement measures how far a pullback goes, an extension projects how far the next leg might travel. The common levels are 1.272, 1.414 and 1.618, drawn from the prior impulse and its retracement.

Extensions are used mainly for profit taking: a trader entering on a pullback might scale out at the 1.272 and 1.618 projections. Used this way they are just a systematic exit rule, which is a reasonable thing to have.

There is no evidence that markets respect these ratios beyond the fact that many traders draw the same lines. Anchoring is also arbitrary; picking different swing points moves every level. Treat the numbers as convention, and prefer targets that also coincide with prior-day-high-low or a high-volume-node.

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