Fibonacci price extensions are similar to Fibonacci price retracements. It is also support and resistance indicator that is used to determine possible support and resistance levels. Like Fibonacci fans, and Fibonacci Retracements, Fibonacci extensions are based on the **mathematical relationships**, expressed as ratios, between the numbers in the Fibonacci summation series. Unlike Fibonacci retracements, however, Fibonacci extensions seek possible support and resistance levels that are more than 100% of the previous price movement.

The key Fibonacci extension levels are found by performing various mathematical operations on the numbers in the Fibonacci summation series, and on the results of those operations.

- The first ratio of
**161.8%**, which is the "**golden ratio**" or the "golden mean", is found by dividing a number in the sequence by the number that precedes it. For example: 21 ÷ 13 = 1.6154, 34 ÷ 21 = 1.6190 and 55 ÷ 34 = 1.6176. - The
**261.8%**ratio is found by dividing a number in the sequence by the number that appears two places before it. For example: 34 ÷ 13 = 2.425, 55 ÷ 21 = 2.619 and 144 ÷ 55 = 2.61818. It is also the square of 1.618 (1.618 x 1.618 = 2.618). - The
**423.6%**ratio is found by dividing a number in the sequence by the number that appears three places before it. For example: 55 ÷ 13 = 4.2308, 89 ÷ 21 = 4.2381 and 144 ÷ 34 = 4.2353. It is also the sum of 1.618 and 2.618 (1.618 + 2.618 = 4.236). - In addition to these three ratios, the
**127.2%**extension level is also used. This level is the square root of 1.618 (√1.618 = 1.272).

Fibonacci extensions are used in a similar way as Fibonacci retracements but the opposite direction. The technical analyst identifies the trend, then waits for the market to turn against the trend and then waits for the market to start moving back in the direction of the dominant trend. The analyst then applies the extension ratios to the previous countertrend movement, or wave, starting from the previous low to the high in an uptrend and in the opposite direction in a down trend. Horizontal lines are then drawn at these levels and are used a possible resistance levels if the dominant trend is an uptrend, or as possible support levels if the dominant trend is a down trend. These thus become places at which the trader could use as price targets when trading in the direction of the dominant trend. The most significant levels are usually the 161.8% level followed by the 127.2% level. The 261.8% level and the 423.6% levels are also significant in strong markets.

Multiple Fibonacci extensions can also be drawn starting from different lows in an uptrend or different highs in a down trend. The end points for the different extensions are the same most recent turning point and can be used with Fibonacci retracement levels of larger price swings. This creates multiple levels with areas were two or more Fibonacci levels are in close proximity being more significant.

The following is a 1-hour chart of the GBP/USD with a Fibonacci Extension drawn on the countertrend rally from the lows made at 17:00 on November 8, 2013 to the high made at noon on November 11, 2013. The subsequent price movement back in the direction of the dominant down trend came within a few pips if the 261.8% extension level on November 12, 2013 before reversing.

Fibonacci Extensions on a 1 Hour GBP/USD chart

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When drawing Fibonacci extension lines, there are usually a number of swing highs and lows you could use for your extension study. Choosing which levels to use can be a challenge at first but here are a few simple guidelines that will eliminate most of the uncertainty.

In an extension study you would want to extend the levels of a countertrend move in the direction of the trend. You would thus want view the most recent swing low in an uptrend as the potential start of the movement back in the direction of the trend. The previous swing low before that would be the start of your extension study, and you would draw your Fibonacci levels up towards the swing high that followed that swing low.

Another useful trick is to check if the market respected those levels in earlier price movements, particularly the 100%, 161.8% and 261.8% levels. If the levels were respected previously, they would probably hold some significance going forward.

Support and Resistance indicators are usually drawing tools such as Andrews' Pitchfork, Gann Lines and Fibonacci Retracements that are drawn directly on the price chart. These indicators are usually a set of lines that attempt to forecast areas of support and resistance in an existing trend. They indicate where the trend could meet support or resistance. Most of these indicators also indicate the possible end of the existing trend. This occurs when the support or resistance line is broken.

When the support or resistance ...

Fibonacci Retracements is a popular support and resistance indicator based on the proportional relationship between the numbers in the Fibonacci sequence. The Fibonacci sequence is the sum of the two numbers beginning with 0 and 1. The key ratios between these numbers are: **161.8%**, **61.8%**, **38.2%** and **23.6%**. These ratios, and the **50%** ratio, are used to divide a price movement in a wave, and plot horizontal lines to determine where a retracement could find support or resistance before the trend resumes.

Fibonacci retracement levels are ...