What Is Fibonacci Extension?
Fibonacci extensions project potential price targets beyond a completed move. Common extension levels: 127.2%, 161.8% (the golden ratio), 200%, and 261.8%. Drawn from the start of a trend, through a pullback, and projected forward.
Used as profit-taking zones in trend-following strategies. If a stock rallies from $100 to $120 then pulls back to $110, a 161.8% extension targets $122.36 (the move's range projected forward). The numbers themselves have no mystical power — they often act as resistance because many traders watch the same levels.
Extensions work best at structurally significant moves with clear pivots. Drawn on noise or arbitrarily-chosen points, they're meaningless. Pair extensions with volume profile, prior resistance, or round numbers for confluence — single-indicator targets are unreliable.
Related terms
- Fibonacci Retracement — Horizontal lines at key Fibonacci percentages used to identify potential support/resistance.
- Support and Resistance — Price levels where buying or selling pressure historically halts price movement.
- Trend — The general direction of price movement over a period — uptrend, downtrend, or sideways.
- Breakout — A price move beyond an established support, resistance, or chart pattern boundary.