What is the Difference between Stock Indices Fibonacci Retracement and Stock Index Fibonacci Extension?

How to use Fibonacci Retracement and Extension and the Difference between Fibonacci Retracement and Extension

Fibonacci Retracement Levels

Fibonacci retracement is drawn between 2 chart points but Fibonacci extension is drawn using 3 chart points.

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

Fibonacci Retracement Levels - How to Draw Fibonacci Retracement Levels

Fibonacci Extension Levels

Fibonacci retracement is drawn between 2 chart points but Fibonacci extension is drawn using 3 chart points.

To draw these Fibonacci Extension levels we wait until the stock indices price retracement is complete and the stock indices price starts to move in the original direction of the Indices trend. Where the retracement reaches is used as chart point 3 for Fibonacci extension.

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

Fibonacci Extension Levels - How to Draw Fibonacci Extension Levels

Please note where these Fibonacci Extension levels are drawn - Fibonacci Extension levels are drawn above the Fibonacci Extension indicator, these are the points where a indices trader will set the take profit orders.