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Fibonacci extensions are an advanced Fibonacci application, which are widely used by traders and investors. They help traders in figuring out the future support and resistance levels of a trend beyond 100% retracement level.

Fibonacci extensions are horizontal lines plotted on key Fibonacci ratios beyond 100 (these ratios are derived by adding standard Fibonacci ratio to 100; eg: 138.2%, 150%, 161.8%, 231.8%, 261.8%, 361.8%, 423.6% etc.). Most popular of these ratios are 161.8% and 261.8%.

Fibonacci extensions can be applied to both downtrend and uptrend. Many traders close their positions when prices touch Fibonacci extension levels. For an uptrend beyond previous swing high, extension level of 161.8% is predicted as the future resistance level and 100% level is taken as support. Similarly for a downtrend beyond previous swing low, Fibonacci extension of 161.8% is predicted as support level and 100% as resistance level. But if the trend is significantly strong, then the prices can easily cross 161.8% level, then the next extension level (usually 261.8) is taken as resistance (for uptrend) or support (for downtrend).

Many modern trading systems allow traders to plot Fibonacci extensions. When employing these tools it is advised to use in combination with other technical analysis tools to find out strength of trends and target prices.

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