Offensive Selling: How to Set Targets and Profit Using Fib Extensions
How to Use Fibonacci Extensions
The Fibonacci extension is a mathematical-based technical analysis tool used to project price targets. The Fibonacci method is for many a preferred tool to use for offensive selling for two reasons:
1. Flexibility: Fibs eliminate the need for all or none decisions by providing multiple target levels, allowing investors to pyramid out of the position.
2. Reactive: Whether it is due to a “self-fulfilling prophecy” or not, the history shows that price tends to react and “respect” key Fib levels.
Traders may each have unique ways of using fibs, but I use them as follows:
– I draw extensions from the top of the base to the bottom. For targets, I use the 1.618% as my first trim area, 2.618% for my second target zone, and the 4.236% extreme extension for my remaining position (normally, I am out of most of my position by this time and only have runners left).
Understand that you can use Fibs for any time frame but I have found that they are the most powerful for long-term price targets.
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