Trading term

What is Fibonacci extension?

Fibonacci extension projects price targets beyond a prior high or low, using three points: a swing low, a swing high, and the pullback between them. The 1.0 and 1.618 levels are the most widely watched targets.

Where retracement asks how deep a pullback may go, extension asks how far the next leg may run. It needs three clicks rather than two: the start of the move (A), its end (B), and the low of the pullback (C). The AB range is then projected forward from C, and lines are drawn at 0.618, 1.0 and 1.618 of that distance.

The 1.0 extension is simply the AB move repeated from the pullback low — the assumption that the next leg travels the same distance as the last. The 1.618 level, derived from the golden ratio, is the classic target for a strong trending move. Because these sit above the prior high, they give you somewhere to aim once price has broken out, where retracement levels no longer help.

The practical use is exit planning. Having a target before you enter is what lets you judge whether a trade's reward justifies its risk, and extensions supply one derived from the chart's own structure rather than a round number.

Three clicks, then a target
0.618 · $70.001 · $81.461.618 · $100.00ABCstalls at 1.0Three clicks — A, B, then the pullback C. The AB range ($30) is projected forward from C.

A, B, then the pullback C. The $30 AB range projected forward from C puts the 1.0 target at $81.46 — and price stalls at $81.80.

For example

A stock runs from $40 (A) to $70 (B), then pulls back to $51.46 (C). Projecting the $30 AB range from C puts the 1.0 extension at $81.46 and the 1.618 at $100. Price breaks out and stalls at $81.80 — the 1.0 target — which is where a trader would take profit or trail a stop.

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Why it matters to you

A trade without a target is a trade you cannot size properly, because reward-to-risk is unknown until you name both ends. Extensions give a structural target rather than a hopeful one, and having it before entry is what makes the difference between a plan and a position you manage by feeling.

⚠ A target is a plan, not a prediction

Price stops where it stops. Holding through obvious weakness because the 1.618 has not been reached is how a winning trade becomes a losing one — the level was always an estimate. Treat extensions as places to reassess or take partial profit, and let the trade's own behaviour override the line.

Frequently asked questions

What is a Fibonacci extension?

It's a tool that projects potential price targets beyond a prior high or low using three points: the start of a move, its end, and the pullback between them. The 1.0 and 1.618 levels are the most commonly watched targets.

What's the difference between Fibonacci extension and retracement?

Retracement measures inside a completed swing to find where a pullback might end, and uses two points. Extension projects beyond the swing to find where the next leg might reach, and needs three points including the pullback low.

How do you draw a Fibonacci extension?

Click the start of the move (A), its end (B), then the low of the pullback (C). The tool projects the AB distance forward from C and draws lines at 0.618, 1.0 and 1.618 of it. The 1.0 level is simply the AB move repeated from C.

Which Fibonacci extension level should you target?

1.618 is the classic target for a strong trend, with 1.0 the more conservative one. Many traders take partial profit at 1.0 and let the rest run toward 1.618, which keeps the plan intact whether the move extends or stalls early.

Related terms

Anchored VWAPAnchored VWAP is a volume-weighted average price that starts from one candle you choose, rather than resetting at the start of each session. You anchor it to a meaningful event — an earnings gap, a major low, a breakout — and it tracks the average price everyone has paid since.Ascending triangleAn ascending triangle is a bullish continuation pattern: a flat horizontal resistance line on top, with a rising trendline of higher lows beneath it. As the higher lows squeeze price against the ceiling, pressure builds — and it usually resolves with a breakout up through the resistance.ATR (Average True Range)ATR (Average True Range) measures how much a security typically moves in a period — its volatility — as an average of recent trading ranges. It doesn't say which direction price is heading, only how far it tends to travel, which makes it a core tool for stop-losses and position size.Bearish engulfingA bearish engulfing is a two-candle reversal pattern in which an up candle is followed by a down candle whose body completely covers it. The second candle opens above the previous close and closes below the previous open.
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