Paul,

That's the equivalent of saying there is no proper way to calculate a simple moving average, linear regression line, standard deviations, standard errors of the estimate, or more specifically, simple fibonacci retracement lines. If someone said that fibonacci retracements are measured from successive swing highs, rather than swing highs and swing lows, opinion would be nearly universal that this would not be "properly us[ing]" fibonacci retracements. There are best practices in every industry.

My question was simple enough but perhaps it can be simpler: how do traders use fibonacci percentages greater than 100% and from what points are they measured.

Parenthetically, of course it's not "magic" -- it's mathematics. Give me a little bit of credit.

Nancy

With regard to fibonacci trading, I often hear investors and traders use the words "retracements," "extensions," "expansions," and "projections," but I am unclear on whether these are four distinct words or whether one or some are synonymous with another.

In order to focus my question and move away from the abstract to the specific, I'd like to offer a basic hypothetical to serve as a framework for the discussion.

Let's say a stock moves from $1 to $11. As many people do, I'll call this the (A) to (B) portion of the move. Thereafter, the stock pulls back from $11 to $6 -- the (B) to (C) part of the move. The initial up move, therefore, was $10 and the correction was $5. I understand that this correction is what is meant by a 50% "retracement". Simple enough.

The words "extensions," "expansions," and "projections," however, leave me confused.

"EXTENSIONS"

1. I heard one person say that an "extension" is measured using only the (A) to (B) part of the move. So, a 127.2% "extension" of the (A) to (B) move would provide a price target, after the retracement to $6, of $12.72 -- ($11-$1) x 127.2%. In other words, according to this person, the retracement isn't involved at all in the calculation of the "extension" target. The "extension" target is simply a continuation of the (A) to (B) move -- 127.2% of $10.

2. I heard another person, however, say that an "extension" is measured using the (B) to (C) part of the move. Therefore, he took ($11 - $6) x 127.2% which is $6.36 and added it to the $6 retracement level, for an "extension" price target of $12.36. So, in other words, this person is saying that an "extension" is a retracement that exceeds 100% -- in this case, a 127.2% retracement of the initial (B) to (C) retracement.

Which, if either, of these two explanations are correct -- 1 or 2?

"PROJECTION"

The only explanation I've heard of a "fibonacci projection" is that a trader takes some fibonacci percentage of the (A) to (B) move and adds it to the (C) retracement, and that these "projections" are often 100% or 161.8%. In the example above, therefore, $10 (100%) would be added to the $6 retracement price, for a 100% fibonacci projection target of $16.

Is this correct?

EXPANSION

I've have no idea what is meant be a "fibonacci expansion" although I hear the phrase used often.


Thanks in advance.



Nancy