Welcome to Lesson 2 of the Fibonacci series by PROP365. In this lesson, we’ll cover how to use Fibonacci extensions — a powerful tool for setting price targets during trends.

What Are Fibonacci Extensions?

Just like Fibonacci retracements help identify potential pullback levels, Fibonacci extensions help traders estimate where a trend might go after a retracement ends. These extensions use the same Fibonacci ratios, especially the 1.618 golden ratio.

How to Use Fibonacci Extensions in Forex Trading

In an Uptrend:

1. Identify the most recent swing low and swing high.
2. Draw the Fibonacci extension from the swing low to swing high, then back down to the retracement point.
3. The chart will highlight extension levels such as 100% and 161.8%, which are key areas to set profit targets.

In a Downtrend:

1. Find the swing high and swing low.
2. Draw the extension from the swing high to the swing low, then back up to the retracement.
3. Use the extension levels for short trade profit targets.

Why Fibonacci Extensions Matter

• They provide objective exit points in both uptrends and downtrends.
• They are based on price psychology and historical patterns.
• The 1.618 level is often where major reversals occur.

Example

Imagine EUR/USD is trending up. After identifying a swing low and high, you draw an extension and get target levels at 100% and 161.8%. The price reaches the first level, retraces slightly, and then hits the second before reversing sharply—this is how Fibonacci extensions work in real-world trading.