Fibonacci Extension
Fibonacci extension lends a hand to finding the possible extension of trend areas. Other technical analysis tools have the same goal. All for one; Forecasting the market. Fibonacci retracement trace climbing down the path of mountain trend and Fibonacci extension trace the climbing up path.
0,1,1.16, 2.618, and 3.618 are numbers that are used in the Fibonacci extension tool and the most important one is 26.18%. Up until this point, everything is similar to Fibonacci retracement, but implementation is a little bit different! Fibonacci extension, in contrast to Fibonacci retracement, classifies beyond 100%. Seek price projection over 100%. For example in a bullish trend, extensions are drawn from prior high-to-low swings and looking for possible resistance levels in 1.272 and 1.618, and so on. It changes the place in a bearish trend, where extensions are drawn from prior low-to high swings and support levels may coincide on 1.272, 1.618 and etc.The Fibonacci extension works well in finding possible support and resistance level, following the line of effect of price projection and also set stop-loss area. Turning on more ratios is optional in Fibonacci tools and traders can add 2.168, and 4.236, ratios and enlarge the forecasting ruler.
EURUSD, Daily Chart (May 2010- May 2011)
Fibonacci Retracement Vs. Fibonacci Extension
Fibonacci steps into the technical analysis world to indicate possible support and resistance levels with two main functionality, Fibonacci retracements and Fibonacci extensions. These pairs of Fibonacci complement each other and stand as a single futurist on the price chart. Both employ the Fibonacci ratios with the same usage but by different procedures.Fibonacci extension extends the trend with the sight of pre-defined Fibonacci ratios beyond 100%, while Fibonacci retracement sees the probability of reversal trends below 100%. Fibonacci extension takes the prior swing at 100 percent level and estimates the trend of market may reach possible support and resistance within lower percentages. Fibonacci retracement estimates the possibility of a reversal trend and lengths it from 0 to 100%. A complete reversal in a bullish trend means that the price falls as long as it had risen. None of the Fibonacci tools limits the price and the price shouldn’t respect them.
It’s highly recommended to imply Fibonacci retracement and then investigate the results of the Fibonacci extension. Fibonacci retracement considers the possibilities of turning the trend back and Fibonacci extension evaluates whether it extends the prior trend. Both situations are simply checked out. In this procedure, sometimes, either Fibonacci retracement or extension levels overlap with previous support and resistance and inform a key level at market.