Fibonacci Projection

A projection answers a different question from a two-point extension. It takes the size of the last impulse and adds that size, or a Fibonacci multiple of it, to the pullback extreme. The 100 percent projection is the classic measured move: the next leg equals the previous leg. The 61.8 and 161.8 percent projections are the smaller and larger versions. This is the tool to use when you believe a correction has ended and you want objectives for the next swing in the trend direction. It assumes you have identified C, the end of the pullback. If C is not in yet, the projection is a guess you will have to redraw.

Draw it only after the pullback has actually turned, or treat the levels as conditional. A 1.618 projection from a C that later breaks is a target for a scenario that died. In an uptrend the useful confluence is a 100 percent projection that lands on a prior high, a value-area edge, or a round number. That is a place to take a partial. The rest of the position can aim at 1.618 if structure says the trend is intact. Projections do not replace a stop. The invalidation is still the break of C or of the structure that defined the setup.

Use the 100 percent projection as the default objective because it does not depend on a special ratio. It is an equal swing. Use 1.618 when the market is trending hard and equal-swing targets are being exceeded. Use 0.618 when the trend is tired and you want a nearer place to reduce risk. Write the objective down when you take the trade so you are not promoted into a further ratio just because price is moving.

Calling a two-point extension and a three-point projection the same level. They coincide only in special cases. Also moving C bar by bar so the target keeps running away, which means you never have to take the profit you planned. And stacking projections from five different swings until some line is near the current price.

A projection is a symmetry assumption. Markets do produce equal legs, and they also produce legs that die at 40 percent of the last one or run for three times. The tool cannot tell you which day this is. News that lands mid-leg makes the symmetry irrelevant. Recompute only when the swing structure actually changes, not when you dislike the target.