Fib targets and confluence
Lesson 12 of 23 in the course “Technical Analysis”. Free, with animations and a quiz.
Extensions: where to take profit
A retracement says where a pullback may end; an extension says how far the next leg may go. Take the first move AB, the pullback end C, and measure from C the length of AB times 1, 1.272 or 1.618. The most popular targets are 100% and 161.8%. It’s not a promise, just a sensible place to take some profit.
Two tools
In TradingView these are two different tools. “Fib Retracement” is two clicks, for finding an entry on a pullback. “Trend-Based Fib Extension” is three clicks (A, B and C), for finding a target. Mixing them up is a common mistake: on the extension 0.618 means a totally different spot.
Confluence is the main secret
One tool gives a weak signal. A strong spot is where several independent reasons meet: a horizontal level, the Fib golden pocket, a trendline, VWAP or a thick spot in the profile. The more reasons meet in one zone, the more people will act there, and the higher the chance of a reaction.
Putting the plan together
Here’s what a full plan looks like. An uptrend on the daily. The pullback reached the 50–61.8% zone where an old level sits. A signal candle appeared there. The stop goes beyond 78.6% or beyond the level’s zone. The target is the last high, then 161.8%. If any item is missing, you can skip the trade: the market will offer another.
Check yourself
- AB runs from 100 to 120, the pullback ended at C = 108. Where’s the 161.8% extension target?
Correct answer: About 140. AB is 20 long. From C add 1.618 × 20 ≈ 32.4: 108 + 32.4 ≈ 140. 132 would be 120%, and 161.8 confuses the percentage with a price. - Which TradingView tool is for a target, not an entry?
Correct answer: Trend-Based Fib Extension (3 clicks). A retracement finds the end of a pullback, the entry. The three-point extension measures how far the next move may go. - Which buy spot is stronger?
Correct answer: 61.8% lines up with an old level and a trendline. Several independent reasons in one zone is confluence. More traders act there, and a reaction is more likely.