Technical Glossary / Fibonacci & Gann Tools
Fibonacci Extension
Levels beyond a swing, measured as ratios larger than 100 percent of that swing, used as possible objectives.
Teaching sketch. It shows the shape, not a live quote and not a trade signal.
Formula
From a swing of length L, an extension of ratio R, with R greater than 1, sits R x L beyond the start. Common ratios are 1.272 and 1.618. Some platforms also plot 2.0 and 2.618. A two-point extension uses the same anchors as a retracement and simply continues the scale past 100 percent.
Definition
An extension asks how far a move might travel past the swing you measured, in units of that swing. If a rally covered 100 points, 1.272 and 1.618 put markers 127 and 162 points from the start. Traders use those markers as places to take profit or to expect a pause, especially when an extension lands on a prior high, a measured move, or a round number. The ratio is a ruler. Confluence with something that is not a Fibonacci line is what makes the price interesting. A naked 1.618 in empty space is just arithmetic.
How it works
Keep the naming straight, because platforms disagree. A two-point tool that runs past 100 percent is an extension of one swing. A three-point tool that takes the first leg, notes the pullback, and projects from the pullback is what this glossary calls a Fibonacci projection. If your platform labels both "extension," look at how many anchors it asked for. Two anchors measure one leg. Three anchors measure a leg and then a restart.
How traders use it
Use 1.272 and 1.618 as candidate targets after a breakout beyond the measured swing, and scale out there rather than assuming price will stop. A target is a hypothesis about where you will pay yourself, not a wall. If price reaches an extension on climax volume and a higher-timeframe level, that is a better place to reduce than the same ratio in the middle of a trend day. If price blows through, trail. The extension did not fail. Your assumption that it was a ceiling did.
Common mistakes
Putting the stop or the whole trade plan on an extension with no structure nearby. Also stacking 1.272, 1.414, 1.618, 2.0, and 2.618 and calling the chart mapped. More lines raise the chance that one of them is near the turn you will later remember. Pick one or two ratios and write them down before the move.
Limitations
Extensions do not know about events, circuit limits, or the higher-timeframe supply overhead. A 1.618 target inside a daily resistance zone is a different trade from a 1.618 target in a market making all-time highs. And the measurement changes if you quietly move the swing start after the fact.
This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.