Fibonacci Extensions

Traders often get excited when they believe they can use an indicator or tool to ‘project’ prices into the future, but in reality, price projections just give us a possible target that the market may or may not achieve.

Traders use Fibonacci Price Projections (also called “Extensions”) in a similar manner as Fibonacci Retracements, but they are looking to project where price will travel upwards to hit resistance (in an uptrend) rather than find where price will find support via retracements.

While traders often use Fibonacci ratios 38.2%, 50.0%, and 61.8% for retracements, it is quite common to use 61.8%, 100.0%, 132.8%, and 161.8% for Price Projections and Extensions.

What exactly does this mean?

To draw a Fibonacci Projection grid, we’ll need to identify a swing low, swing high, and price retracement against the swing high (for uptrends – reverse the definition for projecting price in a down-trend).  Let’s see an ideal example:

Fibonacci Price Projection Example

This example is done in the context of an uptrend.  We start our projection grid off a Swing Low and then draw the first line to the next Swing High.

1.  In an up-trend, Identify a Swing Low (retracement)
2.  Use your Fibonacci Projection Tool to move from the Swing Low to the next Swing High for the ‘base.’
3.  Draw the Second Line from the Swing High to a Retracement (Swing) Low

The first line (from Swing Low to Swing High) serves as the “Measurement Swing” by which we will soon create Fibonacci Projections.  The “Retracement” Swing provides the base from which to project Fibonacci relationships of the first swing.

For example, if the original swing is $10 and our retracement is $5 down, we would take the Fibonacci ratios of the $10 swing (61.8%, 100%, etc) and then add those values to the Retracement Low.  Luckily, most software programs do all this for us with three clicks – you just need to know where to point your mouse to click.

Now, unlike the Fibonacci Retracement tool where we are looking to find support, we are now looking to find points above price where the market is likely to experience Overhead Resistance.  These will now serve as Profit Targets to help us establish risk/reward relationships.

I’ve been trading Stocks and options for 6 years now and with the volatility of the market it can be very difficult to consistently earn money in the market. I have personally paid thousands for training and I know some people that have spent tens of thousands trying to get an EDGE! I’m here to tell you about Steve Place’s system, you can look him up on StockTwits and many other sites. STEVE is THE REAL DEAL
No More Forex Robots! Get A Real Options Trading System From A Professional. Video Training, Custom Charting Software, Powerful Stock Screeners. For access to Steven’s system  Click Here!



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s