Definition of 'Fibonacci Extensions'
The Fibonacci sequence is often used in nature, and it has been shown to have a relationship to the golden ratio, a mathematical constant that is often found in nature and art. The golden ratio is approximately 1.618, and it is often considered to be aesthetically pleasing.
Fibonacci extensions are calculated by taking a Fibonacci number and multiplying it by the distance between two price points. For example, if the distance between two price points is 100, then the 34th Fibonacci extension would be 34 * 100 = 3400. Fibonacci extensions are often used to identify potential support and resistance levels, and they can also be used to create Fibonacci retracements.
Fibonacci retracements are used to identify potential areas of support and resistance after a price has moved significantly. They are calculated by taking a Fibonacci number and dividing it by the distance between two price points. For example, if the distance between two price points is 100, then the 50% Fibonacci retracement would be 50 / 100 = 0.5. Fibonacci retracements are often used to identify potential areas to enter or exit a trade.
Fibonacci extensions and Fibonacci retracements are both useful technical analysis tools, but they should not be used in isolation. It is important to consider other factors, such as the overall trend of the market, before making any trading decisions.
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