In practice
When price breaks into territory with no old levels to aim at, extensions give a measured way to set targets. Traders apply them to the last pullback and take profits in stages at the levels beyond the old high.
They are most convincing where they coincide with something else, such as a round number or a higher-timeframe level.
What to watch for
Extensions are estimates, not magnets. Price can stop well short of them or run straight through, so treat them as places to manage a trade, not as predictions.
Related terms
3 terms- Fibonacci retracementLevels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a move, used to judge how deep a pullback might go.
- Measured moveA rough target that projects a pattern's height from its breakout point.
- Take-profitTPThe price where you plan to close a winning trade, ideally at the next pool of liquidity.