Using Fibonacci Extensions And Projections
Identifying Potential Price Targets with Fibonacci Extensions
The next use for Fibonacci Ratios is to identify potential profit targets. While the first use of Fibonacci Ratios is to find potential support and resistance levels, the next useful thing it does for traders is to find out where prices could potentially move to. Fibonacci extensions are also sometimes known as fibonacci projection or expansion. So in this lesson, when these terms are used they refer to the same concept.
The same ratios still apply in finding Fib targets, and the methodology is almost the same as that for Fibonacci Retracements.
Drawing Fibonacci Projection Targets
To draw Fibonacci Projection targets, we require three swing points. Below is a picture of what Fibonacci Extension Targets look like:
We measure the distance from Point A to Point B when the “V” of the swing points are formed. However, we can’t project price targets until Point C has been established. Only when Point C has been formed do we have the necessary three swing points.
Fibonacci Extensions for Price Targets
Starting from Point C:
- The first price target is 0.618 times of the distance between Points A and B.
- The second price target is 1.000 times of the distance between Points A and B.
- The third price target is 1.618 times of the distance between Points A and B.
Of course prices can continue moving beyond these three points. However, if you want to use Fibonacci Extensions to find potential price targets to scale out of your position, this is how you do it. It’s quite simple once you understand the mechanics of drawing Fibonacci Extensions!
To Summarize The Steps to Drawing Fibonacci Extensions
- Identify a trend that has started and pulled back, forming Points A and B.
- Wait for Point C to form.
- Once Point C has formed, pull out your Fibonacci Projection Tool. Click on Point A, Point B, then Point C.
- Voilà! You have your Fibonacci Extension Targets!
Some Fibonacci ProjectionTarget Trade Examples
Let’s take a look at some trade examples to see what it looks like in actual trading.
The EURUSD 4 Hour Chart
The USDCHF 4 Hour Chart
Fibonacci Expansion (a.k.a. Extension) targets can be seen on all time frames and are useful for finding potential price targets together with your trading methodology.
Some Tips on Fibonacci Projection (Extension) Targets
In using Fibonacci Expansion price targets, you may want to exit partial positions and then trail stops on the rest of your position. This is because prices may continue to trend beyond the targets, and you may want to continue riding the trend for as long as you can.
In all cases, you do require to maintain trading discipline to stick to your trading plan. Otherwise, even the best tools in the world won’t save your trading account.
Fibonacci Trading Resources
For further in-depth lessons on Fibonacci Trading, you can check out the following course:
- Fibonacci Trading by Neal Hughes (a.k.a. “FibMaster”)
A Trading System based around Fibonacci Retracements and Expansions, designed for Stocks, Options, Futures, and Forex traders. Because Fibonacci Ratios are found in all the financial markets, learning to trade Fibonacci allows you to trade practically every market available.
Master Fibonacci Trading to determine probable turning points in advance of the market, and be prepared to take advantage of your new knowledge and trading skill.
Check out the official Fibonacci Trading Master Course >>