MENU
EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFree ProductsPremium Products
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTradingBondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

What are Fibonacci Extensions?

In Fibonacci line analysis, chartists attempt to predict how far a trend will go in a single direction, despite some minor pullbacks that do not break the overall, stronger trend (behavior known as retracements). Trends can be upward or downward and still experience this phenomenon.

Fibonacci extensions are estimations of the next high after an initial push and retracement, using Fibonacci sequences as guidelines. Some investors believe that, like many naturally occurring systems in nature, market behavior will exhibit some fractal-like forms that can be measured with Fibonacci sequence numbers and the Golden Ratio. Modern computing power has uncovered plentiful examples of the Golden Ratio in nature, from Nautilus shells to musical harmonics, as well as mathematical fractal patterns. Fibonacci numbers are related to the study of chaos theory, which seeks to find order in complex systems. Since the markets have so many variables, but no lack of data, they are an excellent place to search for Fibonacci patterns.

The Fibonacci lines used in trading use the proportion of the Golden Ratio (61.8% and 161.8%) as well as second (38.2%) degree separations and even third degrees or roots of the above. In general, extensions are the values over 100% and retracements are values under 100%. This trading system is sometimes incorporated by day traders on Forex markets – by far the most active and highest-volume market in the world because it involves large trades between international institutions in an effort to diversify or consolidate their exposure to various currencies.

Fibonacci extensions help traders set parameters for price targets or identify support or resistance lines for price movements for any timeframe and any security. While potentially useful, there is no single indicator that works well in every instance or guarantees success.

The use of Fibonacci numbers in trading is still in its early stages, but ever-growing computing power available to traders increases their ability to find the common threads that will make this investment theory more usable, accurate, and reliable. These include artificial intelligence services from Tickeron, which provide traders with powerful ways to evaluate trade ideas, analyze signals, and provide key confirmation to help investors make rational, emotionless, and effective trading decisions.

Ad is loading...