Fibonacci Extensions and Projections
Fibonacci extensions project targets beyond a prior swing at levels like 127.2%, 161.8% and 261.8%. Learn how to draw extensions and projections and set targets.
Fibonacci extensions project where a trend might go after it moves beyond its previous high or low. While retracements estimate how deep a pullback might be, extensions estimate how far the next leg might travel. Common extension levels are 127.2%, 161.8%, 200% and 261.8%. Traders use them mainly to set profit targets in trending markets, especially when price is making new highs and there are no previous levels above to use.
Extensions vs projections#
The terms are often used loosely, but there are two distinct methods:
| Method | Points used | Measures |
|---|---|---|
| Extension | Two points: the start and end of a move | How far beyond the move's end price might go, as a multiple of that move |
| Projection | Three points: start of a move, end of the move, end of the pullback | The next leg projected from the pullback low, as a multiple of the first leg |
Most charting platforms call the three point tool a "trend based Fibonacci extension".
Calculating a two point extension#
Calculating a three point projection#
The 100% projection, where the second leg equals the first, is sometimes called a measured move or AB=CD pattern and is one of the most watched targets.
Common levels and their use#
| Level | Typical use |
|---|---|
| 61.8% (projection) | Conservative first target for a weaker second leg |
| 100% (projection) | Equal legs; common target |
| 127.2% (extension) | First target beyond the prior high |
| 161.8% | Popular main target in strong trends |
| 261.8% | Extended target in very strong trends or parabolic moves |
Using extensions in practice#
- Use them for targets, not entries. Extensions suggest where a move might pause, not where to start a trade.
- Take partial profits at the first extension and trail the rest. See Profit Targets and Scaling Out and Partial Profits.
- Look for confluence with round numbers, previous highs on higher timeframes or measured moves from patterns.
- Watch price action at the level: rejection candles or slowing momentum near an extension suggest the move may be ending.
Limitations#
- Many levels, many outcomes: with several extension levels, price will nearly always end near one of them, making them look more accurate in hindsight than in real time.
- Point selection is subjective: different swing points give different targets.
- Strong trends overshoot: in powerful moves, price can blow through all common levels.
Common mistakes#
- Shorting at an extension level in a strong trend just because it was "hit".
- Choosing swing points after the fact to make levels fit.
- Ignoring volatility: in highly volatile markets, targets should be treated as wide zones.
Frequently asked questions#
What are Fibonacci extensions used for?#
Mainly for setting profit targets beyond a previous high or low, estimating how far the next leg of a trend might travel.
What is the most common Fibonacci extension level?#
The 161.8% level is widely watched, along with 127.2% and the 100% projection where the second leg equals the first.
What is the difference between Fibonacci extension and projection?#
An extension uses two points and projects a multiple of one move from its start. A projection uses three points and projects the first leg's size from the end of the pullback.
Sources#
- Wikipedia, Fibonacci retracement
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