Problem understanding fibonacci extensions

I am new to fibonacci cause I don’t use it while I am trading. I only use price action due to support and resistance but observing that fibonacci can be a great way to confirm it, I started reading fibonacci in babypips but didn’t understand part about fibonacci extension.
I read fibonacci extensions in Fibonacci Extensions | Fibonacci | Learn Forex Trading
and I was doing good until it said

In an uptrend, the general idea is to take profits on a long trade at a Fibonacci Price Extension Level. You determine the Fibonacci extension levels by using three mouse clicks.

First, click on a significant Swing Low, then drag your cursor and click on the most recent Swing High. Finally, drag your cursor back down and click on any of the retracement levels.

This will display each of the Price Extension Levels showing both the ratio and corresponding price levels.

well I trade in instaforex and might be the problem with the broker software but when I clicked the retracement level, it doesn’t show price extension levels.

and also couldn’t understand the first 2 pictures of the topic

http://www.babypips.com/school/images/grade3/fibonacci-support-resistance-end2.png

http://www.babypips.com/school/images/grade3/fibonacci-extension-uptrend-end2.png

though I think you need to check the link Fibonacci Extensions | Fibonacci | Learn Forex Trading to see what the pictures tell. I think they are same pictures but different from each other.

can anyone please help me in understanding fibonacci extension and how to draw them along with fibonacci retracement?

Hi Maxim,
I can understand your frustration. There are 2 ways to use at fib extensions and also the fib tool on different platforms will operate slightly different from each other. Most however will allow you to customize the default settings, so if you’re missing certain % levels, you should be able to add them. I use MT4 and not familiar with what you use so I’ll just be talking “in general”.

So you know fibs are all about measuring the distance between a high and a low… aka swing/wave/range, and then calculating the “key percentages” of that distance. So if the range is 100 pips, then 38.2% of it is 38.2 pips, 50% is 50 pips etc.

The 3rd “click” is about taking all those key percentage calculations and then projecting them from the end of the retracement. So then you have to tell the fib tool where the retracement ends then it will show you where 38.2 and 50 pips etc, is from there. The pullback or retracement is like an offset of the original move, and the premise is is that the 2nd move (wave/swing/range) price may travel will be the amount of pips that corresponds to the amount calculated by one of the key fib %'s. In Mt4 the fib tool to do this is called an expansion.

Then the other way to use it is again to calculate the number of pips of the key fib percent levels in the first swing, and then project them all from the high or low of that range instead of from the retracement.

Its just a matter of where you want to project the key distances “from”. Again theoretically the premise is that the distance/move price [B]may[/B] travel, after breaking out of a range, is proportionate to the amount of pips (as calculated by a key fib %) in the range it just broke out of. Picking which level it will more likely travel to for profit taking is another story :wink:

Retracement is about measuring how far price retreated “within” the high and low. If the high low range is 100 pip and price retreated 38 pips it will have retraced 38%.

It’s like breathing…retracements are the inhale, extensions are the exhale…lol.

Hope that helps :slight_smile:

I see, thanks :slight_smile:
so if we retrace uptrend then extension would be the measure of pips in the future if we suppose it to be uptrend.

Yeah I saw expansion button in the fibonacci tool. But it had only few levels (61.8, 100 and 161.8) what others can be added?.
And can you please show a chart where you have used retracement and in the same chart used the expansion too.

Here’s an illustration used in another post

Here is a chart showing the fib retracements tool (with the extension levels too). The retracement to 3 is approx 61.8% of the down swing (1 to 2) to 3. The retracement levels are between 0-100%. The extension levels are beyond 100%.


Here is the same chart showing the expansion tool.


The first pink line is the distance of 1 (high) to 2 (low). The 2nd pink line is the same as the first pink line only it starts (expands) from 3 (the retracement)

You can also add the 61.8, 78.6%, 127%, 200%, 261.8%. Don’t confuse expansion with extension. Extension means “beyond” 100%, whereas expansion means taking the measurement of one area (with it’s retracement & expansion measurements) and overlaying it onto another.

Thanks I understand now :smiley:

Is this ok?


Sorry, I had my post finished and when I hit submit, BP said the “page couldn’t be found” and I lost it and now it’s way past my bedtime and I’m too tired to redo it.

All I’ll say is just understand the concepts and you can measure any area and project it from wherever. Combining fibs with something else like you have on your chart is a good way to go and something to build on. Keep practising and learning :slight_smile:


Ok when you come back please check if this is alright. I just added levels in fib retracements and made this.