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In last lesson, we know Fibonacci is welcomed among many traders and are most commonly applied to identify support and resistance levels.

Fibonacci Retracement

Fibonacci retracement is the most popular tool used by traders who are trading with Fibonacci. It helps you to predict where correction might end.

Fibonacci retracement helps you to find places where correction might stop. With that knowledge you can plan to enter a position from there in a direction of main trend.

Fibonacci Expansion

You can also predict where there will be the next high or low. You can do this with Fibonacci expansion. To do that you need to find three points. A and B from main swing (low and high) and point C where correction ended (similar points as you would be looking to draw retracement levels but here you have to know/decide where correction ended). With that points you are able to draw Fibonacci expansion and in result you have few projections where might be next high/low. There are more levels, but standard are 61.8%, 100% and 161.8%.

Fibonacci Time Extensions

Fibonacci Time Extensions are used to predict periods of price change (i.e. lows or highs). For example, after a downtrend, a reversal would be expected at a significant Fibonacci Time Extension line. Similarly, after an uptrend, a reversal warning could occur if a Fibonacci Time Extension was soon approaching. The Fibonacci Time Extension tool is created by locating a significant high (low) and finding a significant retracement or extension low (high).