What it means
A Fibonacci extension projects the length of a move (A to B) from the end of the pullback (C). Common levels are 1.0 (the same length), 1.272, 1.618 and 2.0.
Some tools call the three-point version a "trend-based extension" or projection.
Why traders use it
Traders use extensions to set targets beyond the previous high, where there is no prior price to reference. They give a consistent, rule-based way to place take-profit orders.
Chart examples
Extension from A, B and C
How to identify it objectively
- 1A: start of the impulse. B: end of the impulse. C: end of the pullback.
- 2All three should be confirmed swing points.
- 3Level = C + (B − A) × ratio for an up move.
- 4Mark 1.0, 1.272 and 1.618 as candidate targets.
Bullish use
- 1Uptrend: A low, B high, C higher low.
- 2Project AB from C.
- 3Take partial profits at 1.0 and 1.272; 1.618 is a stretch target.
Bearish use
- 1Downtrend: A high, B low, C lower high.
- 2Project AB down from C.
- 3Targets at 1.0, 1.272 and 1.618 below.
What confirms it
- The level lines up with another reference (prior high, liquidity, round number).
- Momentum slows as price approaches it.
What invalidates it
- Anchors that are not confirmed swings.
- Price breaks below C before the extension is reached.
How a hypothetical setup is built
Entry
Entry comes from another rule (for example a pullback setup at C).
Stop
Below C.
Target
The 1.0 or 1.272 extension, with 1.618 as an optional runner.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- FibonacciFibonacci Confluence Clusters
- FibonacciAB=CD Pattern
- Chart PatternsMeasured Move
- Full guide on The TradeskillFibonacci Retracement Levels
Historical testing
Not tested on The Tradeskill. Test how often price reaches each extension from your entry rule; that tells you which level is a realistic target.
Limitations: when it fails
- Price often stops short or runs far beyond.
- Different anchors give different targets.
- Ratios have no proven forecasting power on their own.
Knowledge check
Pick an answer to see the explanation. Nothing is saved.