What's Difference between Forex Fibonacci Retracement Levels and FX Fib Extension Levels?

Difference between Fibonacci Retracement Levels and Fibonacci Extension Levels

Fibonacci Retracement Levels in Forex Trading

Fib retracement is plotted between 2 chart points but Fibo extension is plotted using three chart points.

Fibonacci Retracement Level forex trading example below where the forex trend is moving down between Forex Chart point 1 and Forex Chart point 2, then after Forex Chart point 2 the forex price retraces then it continues heading upwards in original upward trend. Note that this Fibonacci Retracement Levels indicator is drawn from Forex Chart point 1 to Chart point 2 in the direction of the trend.

FX Fibo Retracement Zones

Fibonacci Extension Levels in Forex Trading

Fib retracement is plotted between 2 chart points but Fibo extension is plotted using three chart points.

To draw these Fibo Extension zones we wait until the forex price retracement is complete & the price starts to move in original direction of the Forex trend. Where the forex price retracement reaches is used as chart point 3 for fibonacci extension in forex trading.

The Fibonacci Extension forex trading example below shows the 3 forex chart Points where the Fibonacci Extension indicator is drawn, marked as chart point 1, 2 and 3. Forex Chart point 1 is where the forex trend started, Forex Chart point 2 is where the forex trend pulled back & retraced and Forex Chart point 3 is where the price retracement reached as shown on the Fibonacci Extension forex trading example below.

Fibonacci Extension Zones

Please note where these Fibo Extension levels are plotted - Fibonacci Extension zones are plotted above the Fibo Extension indicator, these are the points where a trader will set the forex take profit orders.

How Do You Interpret the Difference between Fibonacci Retracement Levels and Fibonacci Extension Levels in Forex Trading?