Previously we have learned how Fibonacci retracement levels can be used for identifying support zone that we can use as a stop loss. But what about the targets? For that, we can use another tool called Fibonacci Extensions. Let's see what it is.
What is Fibonacci Extension?
Fibonacci Extension is drawn by joining three points like Fibonacci projections. The three points as taken while drawing the Fibonacci projections- same are taken to draw the extensions.
Point A: Swing Low - that is the point from which the actual trend started.
Pont B: Swing High - the point at which price started to retrace.
Point C: Low of the ongoing price correction.
The most common Fibonacci extension levels are 161.8%, 261.8% and 423.6%. Though these are quite far off numbers, the other important resistance levels using Fibonacci extension comes at 50%, 61.8%, 78.6% and 100%.
When the stock is trading at a lifetime high area where there is no prior resistance, we may draw probable resistance levels using Fibonacci extension.
Fibonacci extension in an uptrend: