Fibonacci Price Extensions

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A Fibonacci Price Extension is a resumption of a prior move. The potential Fibonacci Levels for an Extension are calculated by applying Fibonacci Ratios to the extent of the prior move (using either the difference in prices for that move or the percentage by which the price changed. According to Robert Prechter, a leading exponent of the Elliott Wave Principle, price extensions are more reliable than price Retracements (when applied correctly).

Price extensions can be used to set price targets and to assess the strength of a trend. See Disclaimer.

Because there are a number of techniques for drawing Extensions, ChartOverlay provides several options to make it easier to get what you want. The following table explains several methods.

This method requires that you first draw (or select) a Retracement. and then click a point indicating where you expect the Extension to begin. To employ this method, you must make the following settings: · On the Fibonacci tab in the Options dialog, be sure Allow Extensions Without Retracements is NOT checked;   · In the Fibonacci Retracements dialog, be sure End of Retracement is specified in the Extend From group (at the bottom of the left column).   These settings will persist if you don't change them and if you have Make These Values the Startup Defaults in the Fibonacci Dialog. To draw a Fibonacci Extension grid, first draw a Retracement (A to B); then press the button (or choose either Fibonacci Extensions or Add Selected Extension Here from the menu). Then draw the extension grid by clicking on the point (C) at which you want the extension to begin (if you chose Add Selected Extension Here from the menu, the point on which you clicked for the menu will be used to start the extension (Point C)).

Next is a method suggested by Fibonacci guru Rick West. It bypasses the Retracement step and draws the Extension in one step. To employ this method, you must make the following setting: · On the Fibonacci tab in the Options dialog, be sure Allow Extensions Without Retracements is checked.   This setting will persist if you don't change it. To draw a Fibonacci Extension grid, press the button (or choose either Fibonacci Extensions or Add Selected Extension Here from the menu). Then draw the extension grid by clicking on points A, B and C in order (if you chose Add Selected Extension Here from the menu, the point on which you clicked for the menu will be used to start the drawing (Point A)).

This method allows you to draw your Retracement and Extension in a single operation. Retracement Levels are drawn with negative values, starting from the end of your move (B) and going back towards (and perhaps past) the beginning (A). Extension Levels are drawn with positive values, starting from the end of your move (B) and going away from the beginning (A). To employ this method, you must make the following setting: · In the Fibonacci Retracements dialog, be sure End of This Move is specified in the Extend From group (at the bottom of the left column).   This setting will persist if you don't change it and if you have Make These Values the Startup Defaults in the Fibonacci Dialog. To draw a Fibonacci Extension grid, you simply draw a Retracement. Press the button (or choose Fibonacci Retracements from the menu). Then draw the extension grid by drawing a line from A to B.

This method ignores the distinction between Retracements and Extensions. It draws a series of Fibonacci Levels whose numbers start at 0 and grow in the same direction. Except for 0, all numbers will be negative, so you should ignore the minus signs. To employ this method, you must make the following setting: · In the Fibonacci Retracements dialog, be sure End of This Retracement is specified in the Extend From group (at the bottom of the left column).   · In the Fibonacci Levels dialog, check the 0 Retracement Level.   This setting will persist if you don't change it and if you have Make These Values the Startup Defaults in the Fibonacci Dialog. To draw a Fibonacci grid, you simply draw a Retracement. Press the button (or choose Fibonacci Retracements from the menu). Then draw the grid by drawing a line from A to B (Note that A and B are reversed for this method so that 0 will be the level at which the move began); in other words, in this case we begin drawing at the end of the move and end at the beginning.