Fibonacci Extension is a technical analysis instrument utilized in crypto trading to project potential price targets or resistance levels beyond existing price extremes. It applies specific ratios derived from the Fibonacci sequence to anticipate where a prevailing price movement might terminate.
Mechanism
The extension tool is typically applied after a discernible price impulse and a subsequent retracement. It requires three distinct points: a swing low, a swing high, and the conclusion of the retracement phase. Standard extension levels, such as 1.618, 2.618, and 4.236, indicate potential future price boundaries, often serving as zones for profit realization.
Methodology
Traders employ Fibonacci Extensions to define objective profit targets for open positions or to anticipate future market inflection points. This methodology operates on the premise that market price action often respects these mathematical ratios, offering a structured framework for setting price objectives based on historical market behavior and trend continuation.
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