Fibonacci Retracements

Fibonacci retracements are ratios used to identify potential reversal levels. These ratios are found in the Fibonacci sequence. The most popular Fibonacci retracements are 61.8% , 50% and 38.2%. After an advance, traders apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback. Fibonacci retracements can also be applied after a decline to forecast the length of a counter-trend bounce.

Uptrend = Stock High Price - (Stock High Price - Stock Low Price) * Fibonacci Ratio

Downtrend = Stock Low Price + (Stock High Price - Stock Low Price) * Fibonacci Ratio

Fibonacci Extensions

Fibonacci extensions are used in Fibonacci retracement to predict spaces of resistance and support in the market. These extensions involve all levels drawn past the basic 100% level; they are frequently used by traders to determine areas that will bring in profits. One popular extension, the 161.8% level, is used to set a price target on a breakout of an ascending triangle; this target is calculated by multiplying the vertical distance of the triangle by key Fibonacci ratio 61.8%, and then adding the result to the triangle’s upper resistance level.

Uptrend = Stock High Price + (Stock High Price - Stock Low Price) * Fibonacci Ratio

Downtrend = Stock Low Price - (Stock High Price - Stock Low Price) * Fibonacci Ratio