Fibonacci Extensions, Expansions and Price Targets
Lesson 03 of 12. Calculate projected targets while distinguishing two-point extensions from three-point expansions.
1. Extension versus expansion
A two-point extension projects distances beyond the initial range. A three-point expansion projects a measured A-to-B leg from a later C point. Platforms label these tools differently; inspect the formula rather than the name.
2. Common projections
Levels often watched include 1.000, 1.272, 1.618 and 2.000 of the reference leg. The 1.618 projection is a scenario target, not evidence that price must reach it.
3. Two-point example
A bullish swing from 1.2000 to 1.2100 has a 100-pip range. A 1.272 extension from the low is 1.21272, and a 1.618 extension is 1.21618.
4. Three-point example
If A=100, B=110 and C=106, an AB=CD projection at 100% gives D=116. A 127.2% expansion gives 118.72. Check whether your platform measures from A or from C.
5. Target selection
Prior highs, round numbers, session ranges and liquidity pools may be nearer than a projection. Compare all candidate targets with the entry and stop, and reject trades whose realistic target is too close.
6. Managing partial exits
If a strategy scales out, record how much closes at each target and the weighted realized R multiple. A move to breakeven is not free: spreads and premature stop-outs affect expectancy.
7. Failure modes
Extensions can overshoot or never print. They are sensitive to anchor selection. A projected target near a scheduled announcement may be less useful than a volatility-adjusted exit.
8. Practice task
Build five AB=CD target calculations by hand, then compare against a charting tool. Save screenshots of the original anchors before evaluating outcomes.
Knowledge check
- How does a 161.8% extension differ from a 61.8% retracement?
- If a measured swing is 40 points, what is 1.618 times that distance?
- What market structure would invalidate a target projection before it is reached?
Answer using the worked example above. Record your calculations and one reason the setup could fail before revealing any chart outcome.
Worked numerical example: Projection from a measured swing
For a 20-point upswing, projecting 1.272 × 20 above a 110 retracement low gives 135.44. A 1.618 projection from the same anchor gives 142.36. Extension conventions differ by platform: always record the three anchors and the formula used.
Practice and answer
Show worked answer
A 50% retracement can provide an anchor for a separate extension exercise, but it is not itself a profit target. Once A, B and C are fixed, project extensions from the correct leg and check whether the target remains plausible after spreads and volatility.
Independent worked analysis: A projection is measured from a specified anchor
Hypothetical worked example: For a 120-pip impulse from A to B, a 161.8% projection of the same length is 194.16 pips. If the projection starts at a later pivot C, the projected price is C plus or minus that distance, not necessarily B plus it.
Calculation and decision exercise: Write the full formula including the sign of the expected move and the anchor. Compare a 100% projection of 120 pips with the 161.8% projection.
What this example cannot establish: A calculated target does not predict whether price will reach it before a stop. That requires separate outcome testing.
Evidence checklist for this specific lesson
- Write down the precise inputs used in the a projection is measured from a specified anchor example, including their units and observation dates.
- Distinguish what can be computed directly from what must be inferred about future prices or policy.
- Test the opposite interpretation using a clearly stated alternative assumption, not a revised chart drawn after the outcome.
- Document transaction costs and the maximum hypothetical loss before treating any market view as an executable strategy.
Applied analysis: testing the lesson in context
The following exercise develops the specific decisions involved in fibonacci extensions, expansions and price targets. It is a hypothetical training workflow, not a prediction or an instruction to place a live trade. Keep the market, time zone, instrument, observation window and data source fixed before evaluating the idea. Separate what the chart shows from the interpretation assigned to it; two analysts can label the same sequence differently without either label being a verified market mechanism.
Case step 1: 1. Extension versus expansion
Start with the lesson's 1. extension versus expansion component. Source observation: A two-point extension projects distances beyond the initial range. A three-point expansion projects a measured A-to-B leg from a later C point. Record the exact candle or pivot at which this information first became available. If confirmation depends on a later close, mark that later close as the earliest legitimate decision point. A visually compelling retrospective drawing is not sufficient evidence that the setup was identifiable in real time.
Now construct a counterexample for 1. extension versus expansion: imagine the price initially behaves as the lesson suggests but then fails to follow through. Write the invalidation condition as an observable price or time event, not as a vague change in confidence. Compare two annotated screenshots, one before the proposed confirmation and one after it. Explain what genuinely changed in the available evidence. For a trading-system study, record spread, slippage, position size, and whether the proposed stop could have been filled at the assumed price.
Case step 2: 2. Common projections
Start with the lesson's 2. common projections component. Source observation: Levels often watched include 1.000, 1.272, 1.618 and 2.000 of the reference leg. The 1.618 projection is a scenario target, not evidence that price must reach it. Record the exact candle or pivot at which this information first became available. If confirmation depends on a later close, mark that later close as the earliest legitimate decision point. A visually compelling retrospective drawing is not sufficient evidence that the setup was identifiable in real time.
Now construct a counterexample for 2. common projections: imagine the price initially behaves as the lesson suggests but then fails to follow through. Write the invalidation condition as an observable price or time event, not as a vague change in confidence. Compare two annotated screenshots, one before the proposed confirmation and one after it. Explain what genuinely changed in the available evidence. For a trading-system study, record spread, slippage, position size, and whether the proposed stop could have been filled at the assumed price.
Case step 3: 3. Two-point example
Start with the lesson's 3. two-point example component. Source observation: A bullish swing from 1.2000 to 1.2100 has a 100-pip range. A 1.272 extension from the low is 1.21272, and a 1.618 extension is 1.21618. Record the exact candle or pivot at which this information first became available. If confirmation depends on a later close, mark that later close as the earliest legitimate decision point. A visually compelling retrospective drawing is not sufficient evidence that the setup was identifiable in real time.
Now construct a counterexample for 3. two-point example: imagine the price initially behaves as the lesson suggests but then fails to follow through. Write the invalidation condition as an observable price or time event, not as a vague change in confidence. Compare two annotated screenshots, one before the proposed confirmation and one after it. Explain what genuinely changed in the available evidence. For a trading-system study, record spread, slippage, position size, and whether the proposed stop could have been filled at the assumed price.
Evidence record and independent assessment
Create a small research log specifically labelled “Fibonacci Extensions, Expansions and Price Targets”. For each candidate observation, store its date, instrument, session, timeframe, setup definition, entry eligibility, invalidation level, expected costs, and actual subsequent path. Include candidates that never triggered, rather than selecting only attractive examples. Compare at least two market regimes and note whether the interpretation changes when a nearby swing anchor or session boundary is chosen. If it does, classify the result as sensitive to analyst discretion rather than robust evidence.
Finally, write a three-part conclusion about fibonacci extensions, expansions and price targets: (1) which elements can be verified directly from historical prices, (2) which elements are hypotheses about participants or future behavior, and (3) what observation would cause you to reject the hypothesis. The exercise is complete only when a second reader could reproduce your markings using the written rules. Do not infer a profitable edge from a single worked example; that requires a separately designed, cost-aware and out-of-sample evaluation.