Fibonacci Extension Deep Dive

The Fibonacci Extension indicator measures potential price targets beyond the initial swing high or low by applying key Fibonacci ratios to the measured move. Unlike retracements that focus on pullback levels, extensions project where price may find support or resistance after breaking out from a defined range. The indicator identifies three critical extension levels: 100%, 161.8%, and 261.8%. These represent mathematical relationships derived from the Fibonacci sequence and are plotted horizontally on the chart. The 100% level marks the completion of the initial move, while 161.8% and 261.8% indicate potential reversal zones where price might pause or reverse. These levels don't guarantee price action but provide traders with informed reference points for decision-making. When price extends beyond the initial swing point, traders use these levels to anticipate where the momentum might exhaust or consolidate. The measurement requires three points: the start of the initial move, the end of that move, and the retracement low or high. This creates a 'measured move' framework that projects potential future price zones. Traders often combine Fibonacci Extensions with other technical tools like trendlines, volume, or candlestick patterns to increase probability. The indicator works across all timeframes and markets, making it versatile for various trading strategies. However, its effectiveness depends on correct identification of the three reference points and market context. Misapplication can lead to misleading projections, so proper chart analysis is crucial before plotting the indicator.