Fibonacci extensions are the opposite of Fibonacci retracements. While retracements ”retrace” the price of the main movement and are therefore between 0% and 100% (full and total retracement), extensions to the opposite extend the previous movement beyond 100%.
Generally, the most popular extensions are:
–> 127.2 % (square root of 161.8 %)
–> 138.2% (addition of 100% and 38.2%)
–> 161.8 % (1 divided by the gold ratio)
–> 200% (like the 50% level for retracements, the 200% is highly regarded)
–> 261.8 % (addition of 100 % and 161.8 %)
These levels of extensions may represent future technical areas that the market may know because, once again, many traders are looking at these extensions.
To plot Fibonacci extensions, we must take a low point on our first wave of impulse (0), trace our retracements to the high point corresponding to the end of the first wave (1), then trace back to the end of the correction in wave two (2). This gives us different extensions of the first wave.
On this 2-hour Bitcoin graph, retracements were plotted (green trend line), as well as extensions (purple trendline).
First, we trace our retracements (to look for the low point of the correction) and we see that wave 2 corrected between 61.8% and 76.4% which is a good correction. A possibility of purchase was possible.
Then, we trace our extensions: from the beginning to the end of wave 1 as well as the correction in 2, which ‘’extends” our first wave and allows us to look for a potential target for wave 3.
Another example of the extension of a wave A: we are looking for the end of the B.
For those who love Elliott, it is common to say that wave C generally makes 100% to 127.2% of wave A. Thus, on this example of intraday BTC, it was possible, with this potential reversal structure (in yellow), to attempt a sell.
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