Fibonacci Retracement and Extension are two of the most valuable tools in Technical Analysis, widely used by traders on stock, forex, and commodity markets. This blog post will explain what differentiates Fibonacci Retracements from Extensions, how they’re calculated, and how you can utilize them effectively.
Table of Contents
What is Fibonacci Retracement?
Fibonacci Retracement is a technical analysis tool used to pinpoint support and resistance areas in financial markets. It’s based on the Fibonacci sequence, an ordered mathematical sequence where each number equals the sum of its two preceding numbers. In financial markets, Fibonacci Retracement often serves as an indication of potential price movements in the future.
What is Fibonacci Extension?
Fibonacci Extension is an advanced technical analysis tool used to gauge how far a price move will go. It follows the same Fibonacci sequence as Fibonacci Retracement but instead focuses on predicting future prices rather than simply identifying support and resistance points.
Fibonacci Retracement vs Fibonacci Extension (The Diffrence)
The key difference between Fibonacci Retracement and Fibonacci Extension is that. Fibonacci Retracement is used to identify potential support and resistance zones or areas. While, Fibonacci Extension predicts how far the price could move after a retracement.
How Fibonacci Retracement is Calculated
Fibonacci Retracement is calculated by first identifying a trend’s highest and lowest points. Then, these price levels are divided by Fibonacci sequence numbers to identify potential support and resistance levels. Common Fibonacci Retracement levels include 23.6%, 38.2%, 50%, 61.8%, and 100%.
How Fibonacci Extension is Calculated
Fibonacci Extension is calculated by first identifying a trend’s highest and lowest points. Then, these price levels are divided by Fibonacci sequence numbers to identify potential price targets. The most widely used Fibonacci Extension levels are 161.8%, 261.8%, and 423.6%.
Conclusion
Fibonacci Retracement and Fibonacci Extension are two essential technical analysis tools traders use to identify support and resistance areas and predict future price movements. Though both are based on the same Fibonacci sequence, they serve different purposes; Fibonacci Retracement helps pinpoint areas of support or resistance, while Fibonacci Extension predicts prices ahead. By understanding how these tools are calculated and employed, traders can make better-informed trading decisions.
If you want to learn more about Fibonacci retracement and Extension, here are some articles for you:-
How to use Fibonacci Retracement and Extension ?
How to Trade with Fibonacci Retracements and Extensions
