Fibonacci levels are a standard measure for support and resistance levels within the market. These levels are calculated by analyzing the retracement levels between two swing points (Peak and Trough).The next question we have to ask ourselves as traders, is what happens when price exceeds the very swing points we use to calculate our Fibonacci levels? At what point do we look to exit our position?
The key to these questions are Fibonacci extensions. Fibonacci extensions provide price targets that go beyond a 100% retracement of a prior move. The levels for Fibonacci extensions are calculated by taking the standard Fibonacci levels and adding them to 100%. Therefore, the standard Fibonacci extension levels are as follows: 138.2%, 150%, 161.8%, 231.8%, 261.8%, 361.8% and 425.0%.
Key Fibonacci Extension ratios:
- 161% (1.618)
- 261% (2.618)
- 425% (4.250)
