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Key Takeaways
- A three-point extension measures the A-to-B leg and projects selected multiples from pullback anchor C.
- The standard three-point construction anchors a swing low, a swing high, and the pullback that follows, then projects ratios of the first leg from the pullback anchor.
- Common projection multiples include 1.000, 1.272, 1.618 and 2.618. One times the original leg is a measured move.
- Use projected prices to define target levels and the exact quantities assigned to each exit.
- Fix A, B and C under one pivot rule before trading, because a different swing moves every target.
What is a Fibonacci extension?
A Fibonacci extension is a price projection that, in its standard three-point form, measures an impulse leg from A to B and adds selected multiples of that distance to the pullback point C, giving specific target prices for the next leg. Common multiples are 1.000, 1.272, 1.618 and 2.618. For an upward impulse, target = C + r(B − A).
For a downward impulse, the same signed formula applies because B − A is negative.
Formula
Uptrend extension target = C + r × (B − A); downtrend extension target = C − r × (A − B)- A is the swing low that starts the impulse leg and B is the swing high that ends it, reversed for a downtrend.
- C is the pullback anchor, the retracement extreme that price reaches before the trend attempts to resume.
- r is the chosen extension ratio, commonly 1.000, 1.272, 1.618, or 2.618.
- A two-anchor tool projects from A instead: A + r(B − A), which equals B + (r − 1)(B − A). Check which origin a chart uses before comparing its levels with C + r(B − A).
How to calculate Fibonacci extension levels
A stock rises from A $48 to B $55 and pulls back to C $51.50. The chart later closes above B at $55.40 on bar 18. For the exit comparison, assume a 100-share entry at $55.40 and fills of 50 shares at $58.50 and 50 at $60.40.
- Impulse leg: $55.00 − $48.00 = $7.00
- Pullback depth: ($55.00 − $51.50) / $7.00 = 50% retracement
- 1.000 extension: $51.50 + (1.000 × $7.00) = $58.50
- 1.272 extension: $51.50 + (1.272 × $7.00) = $60.40
- 1.618 extension: $51.50 + (1.618 × $7.00) = $62.83
The chart peaks at $60.62 and ends at $59.10. Selling 50 shares at $58.50 and 50 at $60.40 realizes $405 gross. Holding all 100 shares to the final $59.10 mark leaves a $370 unrealized gain, and the $62.83 level never trades.
One times the impulse is a measured move. The 1.272 and 1.618 multiples approximate the square root of the golden ratio and the golden ratio; 2.618 approximates its square.
Projection origin: three-point vs two-anchor extensions
The origin decides the price. At r = 1.618, a two-anchor tool that projects from A, A + r(B − A), prints $59.33. Projecting 1.618 full legs from B gives $66.33, and projecting from C gives $62.83.
Write the origin next to the price, so a 1.618 target means one level to everyone who reads it. The three-point expansion selects the impulse start, impulse end and retracement end.
A C-based target clears the prior high whenever the ratio exceeds the pullback’s depth. This pullback gave back 50% of the leg, a 0.50 threshold, so even a ratio below 1, such as 0.618, projects $55.83, above the $55 high.
Fibonacci extension exit plan example
The chart closes at $55.40 on bar 18, reaches a $60.62 high and ends at $59.10. Buy 100 shares on that close at $55.40.
Selling 50 shares at $58.50 and 50 at $60.40 realizes $405 gross. Holding all 100 shares at the final $59.10 mark gives a $370 unrealized gain.
The $62.83 target never trades in this sequence. Scaling out at the first two levels banks $405 against the $370 left on paper by holding to the close.
How traders use Fibonacci extensions
Define the pivot rule, price input and time each anchor becomes confirmed. Fix A, B and C for the setup, then record entry, invalidation, target quantities and the exit rule for any remaining position.
Compare target locations with Support and Resistance. Use Fibonacci Retracement for the separate task of measuring pullback depth.
Pull the ticker up in Options Flow to see the strikes big money is buying, then read the position’s payoff at each extension level in the Options Profit Calculator to price every scale-out before entry.
Limitations of Fibonacci extensions
- Fix the swings before the trade. A different A, B or C moves every target, so lock the anchors under one pivot rule.
- Check the tool’s origin. On this chart, a 1.618 label means $59.33 projected from A, $62.83 from C or $66.33 from B.
- Plan for a target that never trades. The example peaks at $60.62, short of the $62.83 level, so any shares parked there need a stop or a time exit. When price runs through a level without pausing, a trailing stop keeps the gain.
- Cross-check each ratio with nearby support and resistance, and favor the levels where both agree.
- Calculate targets once C is confirmed. A deeper pullback changes C and every target built from it.
Bottom line
A three-point Fibonacci extension turns a measured impulse and its pullback into specific target prices for the next leg. Fix A, B and C under one pivot rule, name the origin and ratio convention with each price, and assign exit quantities to the levels in advance.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Alexander Sabodin, Fibonacci Tools, Stocks & Commodities 27:4 (2009), pp. 26–29
- Fidelity: Fibonacci Retracement
How entries are sourced, calculated and updated: editorial methodology.