Fibonacci Retracement vs Fibonacci Extension

Fibonacci Retracement and Fibonacci Extension are 2 of the most efficient tools in Technical Analysis and are commonly used by traders in the stock, forex, and commodity markets. In this blog post, we’ll explore the difference between Fibonacci Retracements and Extensions, how they’re calculated, and How you can use them.

What is Fibonacci Retracement?

Fibonacci retracement

Fibonacci Retracement is a technical analysis tool to identify support and resistance areas in financial markets. It is based on the Fibonacci sequence, a mathematical sequence of numbers where each number is the sum of the two preceding numbers. In the financial markets, Fibonacci Retracement is often used to predict future price movements.

What is Fibonacci Extension?

Fibonacci Extension

Fibonacci Extension is an advanced technical analysis tool used to measure how far a price move will go. It is based on the same Fibonacci sequence as of Fibonacci Retracement. However, the Fibonacci Extension focuses on predicting future prices rather than identifying areas of support and resistance.

The Difference Between Fibonacci Retracement and Extension

The main difference between Fibonacci Retracement and Fibonacci Extension is that. Fibonacci Retracement is used to identify support and resistance areas, whereas Fibonacci Extension predicts how far the price would move after a retracement.

How Fibonacci Retracement is Calculated

Fibonacci Retracement is calculated by first identifying a trend’s highest and lowest points. Then, the price levels are divided by the Fibonacci sequence numbers to determine potential support and resistance levels. The most commonly used Fibonacci Retracement levels are 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, the price levels are divided by the Fibonacci sequence numbers to determine potential price targets. The most commonly used Fibonacci Extension levels are 161.8%, 261.8%, and 423.6%.

Conclusion

Fibonacci Retracement and Fibonacci Extension are two essential technical analysis tools used by traders to identify support and resistance areas and predict future price movements. While they are both based on the same Fibonacci sequence, they are used for different purposes, with Fibonacci Retracement used to identify areas of support and resistance and Fibonacci Extension used to predict future prices. Understanding how these tools are calculated and used can help you make more 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

Author

  • Tricia Scone is a Trading and Investing Enthusiast and has trained thousands of people in various complex courses of finance. She has a unique way of providing Complex Financial knowledge in simpler words. which is why she is regarded as one of the most popular finance coaches in the world.

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