## Fibonacci Expansion Levels

**Fibonacci Expansion Levels are lines in technical analysis, calculated as the percentage between high and low price, which can be drawn above the highest high or below lowest low price level. Fibonacci levels are always projection levels.**

**Fibonacci Expansion Levels or Fibonacci Extension levels follow the same logic as Fibonacci retracements.**

**The most common levels used for Fibonacci Expansion levels are 1.618% and than 2.618% (some traders use 123.6%; 138.2%, 150.0%, 161.8%, 200% and 261.8%)**

**The most common levels used for Fibonacci retracements are 23.6%, 38.2%, 61.8%.**

## Main Facts about Fibonacci Expansion (Extension) levels and Fibonacci retracements

When it comes to technical analysis, the term that refers to any area of resistance of support is known as a Fibonacci retracement. It will also use a horizontal line in order to point where there might be resistance or support and each of those levels will be labeled using percentages. That percentage amount is a pricing amount that has moved and been retraced. The levels that happen within Fibonacci retracements are 78.6%, 61.8%, 38.2%, 23.6%, while even though it may not be official 50% can be used.

This is considered to be useful due to it being able to show highs and lows between different price points and this creates the known level between the selected points.

For instance, if the price started out at $10, and it suddenly drops to $3.82, then it has done a retrace and this percentage is a retraced 38.2%, which is a number of the Fibonacci retracement. These particular sets of numbers can be found everywhere in nature, so it is believed that these particular numbers are relevant within the financial market.

Formula Used to Find the Fibonacci Expansion (Extension) and Retracement Levels

An indicator will not have a formula, so whenever a trader applies an indicator to charts and two points are picked, once selected, the lines that are drawn will show the moving percentage.

For instance, if there is a price that goes from $15 to $20, and the two prices are what have been selected to find the indicator, then simply multiply the amount difference between the two prices by the Fibonacci Retracement percentages to find the levels. Therefore, you would take $20 – ($5 X 0.5) = $17.50 and so on.

If a trader wanted to calculate the levels, you would follow the formula listed above and use the percentage of a particular price range that has been selected.

However, many ask where these particular sets of numbers originate from. They are all based on what is known as the Golden Ratio.

If a person was to create a specific number sequence that began with the number zero, then added one, and eventually just continuously adding the first two numbers, this string of numbers would just continue indefinitely. For instance, it would look something like this:

0+1 = 1, 1+1=2, 1+2 = 3, 3+2 = 5, 5+3=8, 8+5 =13, 13+8=21, 21+13 = 34, 34+21=55, 55+34=89, and it would continue on just like this. The sums would make up the entire string of numbers and would go on indefinitely.

All of the levels are going to come from this string of numbers, however, this excludes the first very few numbers so when the string is going, if the number is divided by the number that comes next, you will end up with the level numbers. However, taking time to carefully explore these options, a person would notice that all of these percentages, except for 50% will be considered to be a true Fibonacci number as 50% is not seen to be an official percentage. All of these percentages will be based on math calculations based on this particular number string.

Another interesting thing about the Golden Ratio, is that 1.618 or 0.618 can be located within galaxy formations, historical architecture and artifacts, shells and even in sunflowers.

## What Do the Levels Say?

The Fibonacci retracements are able to be used in order to find out the levels of stop-loss, help to set target prices and place entry orders. If a trader notices that a stock is moving up and after it moves it ends up with a 61.8% retrace and then it begins to bounce once again. Because the bounce was considered to be at a level on the Fibonacci scale, and if the trend stays for a long time, then a trader may decide to buy. This means that a trader could create a stop loss within the 78.6% level or 100% where it originally started.

These levels can also be utilized in various types of technical analysis. For instance, they are seen in the Elliott Wave theory and Gartley patterns. After a price has moved down or up significantly, when a price starts to retrace its path, which it seems to always do, these analyses will find the retrace and notice that it reverses to certain levels.

These levels are often at a static price that will not change often, unlike a moving average. In order to easily and quickly identify price levels, a static nature will be needed. This allows investors and traders to react and anticipate when a level may be tested. The levels will often be an inflection point, which may indicate where a price action could be expected, whether it be a break or a rejection.

## How Do You Trade Fibonacci Expansion Levels?

The simple strategy is to use the highest high and lowest low and add Fib levels using MT4 platform :

If you pick Fib. levels retracements or Expansion levels you will get in both cases expansion levels. Expansion levels tool will give you only 2 most common levels for your target.

So your strategy can be for **SELL TRAD**E :

Step 1: Pick low and high on the chart.

Step 2: If you see that the price on hourly close is below **61.8%** Fibonacci retracement than make SELL trade.

Step 3: Put **stop loss on High Price**.

Step 4: **Set your target to be either 161.8%** expansion level or 200% expansion level or 268.1% expansion level.

OR you can cut a small number of lots on each target and move stop loss whatever you like.

See this strategy for sell trade on the image below:

## Differences Between Expansions (Extensions) and Retracements levels

The Fibonacci extensions are the percentages that go back to a trending direction while the retracements are the percentages that pullback. For instance, if you have a stock that increases from $5 all the way up to $10, but then it goes back down to $6.75, then it is considered to be a retracement, but if that price happens to increase up to $16, then it is called an extension.

**Level Limitations **

Even though retracement levels can show where a price may potentially find resistance or support, there are not any assurances that this particular price will stop at that point. This can be seen as a reason as to why a trader should look for other signals that may be utilized, such as prices bouncing off of a particular level.

Another argument against a retracement level is that, due to there being several levels, the price could possibly reverse near one of these levels and this can happen a lot more often than it would not. The overall problem being that a trader could possibly struggle to locate which one that would be useful during any retracement that may be happening at that point and is being analyzed.

**The Key Takeaways**

An indicator connects two points that a trader will view as being relevant, which is often a low and high point. Once an indicator has been selected and drawn on the chart, these levels will be considered as fixed and will not change. The percentages that are provided will be locations where pricing may reverse or stall. A trader should not solely rely on the levels. For instance, it is detrimental to assume that a price will reverse after hitting a particular Fibonacci level. It could, but then it may not.

A Fibonacci retracement level can be used to show areas of interest that may show potential. If traders are looking to buy, they will watch to see if price stalls at a Fibonacci level and wait for it to bounce off that particular level before they decide to buy at all.

The ratios that are the most commonly used will include 78.6%, 61.8%, 38.2%, 23.6%, while 50% is seen to be an unofficial retracement level. These percentages will show how much of a previous move was made, whether it be retracted or corrected.