How to draw fibonacci extensions. Two schools of thought?

Beginner Questions
1

I’m quite confused about this, because it seems that there are two sets of traders who draw the fib extension/expansion very differently, leading to completely different sets of levels.

Here on Babypips we’re told to factor in the retracement from the original impulse leg. For a bullish initial move followed by a retracement, we are told to click the swing low, then the swing high, then the lowest point of the retracement.

This leads to having the 1.000 level of the extension [B]above[/B] the highest point of the impulse leg which makes no sense at all to me. Surely if the market moves say 1.414 times the initial move, this point should be 1.414 times higher than the initial move? The fib “expansion” tool on MT4 supports this, it draws two lines with one that you can drag onto the relevant point of the retracement.

However, there is another way to draw the fib extension that I see online that seems to make more sense. Essentially, it plots the 0 point at the start of the impulse leg and the 1 at the end of the impulse leg. It does not consider the retracement at all. It’s the same as doing a projection using a fib retracement tool (by clicking on the end of the move then the start of the move) with the relevant extensions in place.

It (the second method) is explained well here: YouTube

My questions are: why are there two fundamentally different ways to use the same tool, and which one is considered “correct”? Why does the Babypips course use the method that (I believe) is nonsensical?

Thanks for your help.

EDIT: I have now realised that extensions and expansions are two different things.

2

Whats the correct way to use a knife and fork - your way bro.

It sounds like a cop out answer but it is where reality lies. Drawing of these “Fib” (short for fibber -as in they lie) lines is a subjective exercise and why you will see variations out there on how to draw and use them. At the end of the day you will have to come up with your own methodology if you wish to apply them. Probably not worth the time and effort.