As of 09/23/2020
  Indus: 26,763 -525.05 -1.9%  
  Trans: 11,095 -119.92 -1.1%  
  Utils: 785 -14.21 -1.8%  
  Nasdaq: 10,633 -330.65 -3.0%  
  S&P 500: 3,237 -78.65 -2.4%  
YTD
-6.2%  
 +1.8%  
-10.7%  
 +18.5%  
 +0.2%  
  Targets    Overview: 09/14/2020  
  Up arrow29,400 or 26,700 by 10/01/2020
  Up arrow11,750 or 10,600 by 10/01/2020
  Up arrow845 or 775 by 10/01/2020
  Up arrow11,800 or 10,400 by 10/01/2020
  Up arrow3,600 or 3,200 by 10/01/2020
CPI (updated daily): Arrows on 8/18/20
As of 09/23/2020
  Indus: 26,763 -525.05 -1.9%  
  Trans: 11,095 -119.92 -1.1%  
  Utils: 785 -14.21 -1.8%  
  Nasdaq: 10,633 -330.65 -3.0%  
  S&P 500: 3,237 -78.65 -2.4%  
YTD
-6.2%  
 +1.8%  
-10.7%  
 +18.5%  
 +0.2%  
  Targets    Overview: 09/14/2020  
  Up arrow29,400 or 26,700 by 10/01/2020
  Up arrow11,750 or 10,600 by 10/01/2020
  Up arrow845 or 775 by 10/01/2020
  Up arrow11,800 or 10,400 by 10/01/2020
  Up arrow3,600 or 3,200 by 10/01/2020
CPI (updated daily): Arrows on 8/18/20

Bulkowski On Fibonacci Extensions

 

My book, Trading BasicsTrading Basics: Evolution of a Trader book., discusses Fibonacci extensions beginning on page 84 in the section titled, "4. Myth: Fibonacci Extensions Work!".

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

Picture of Dupont (DD) on the daily scale.

What is a Fibonacci Extension?

I show a picture of DuPont (DD) on the daily scale to illustrate what a Fibonacci extension is.

An extension is just as it sounds, a lengthening of the AB move. If the AB move represents a 100% gain, then point D would be some multiple of that (even if the multiple is a fraction). Many will claim that the multiple will be a Fibonacci number, such as 38%, 50%, 62% or higher, such as 138%, 162% and so on. The retrace to C does not affect the extension computation. The extension measures from B to D.

In this example, the move from A to B is 3 points. The move from B to D is 6 points (all values are approximate for simplicity). Thus, the BD move is 200% of the AB move. It's a 200% extension.

How often is the extension a Fibonacci number? Another way of asking that is, can we say that if price approaches a Fibonacci multiple that it will be more likely to hit overhead resistance than any other multiple? The short answer is "no."

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Fibonacci Extensions: Method

I programmed my computer to find the ABCD move in every stock I follow and some that I used to follow, or almost 1,500 securities. I only included data from stocks priced over $5 per share from the start of the bear market in March 2000 to April 27, 2011.

Using 21,626 samples from a bull market, I did a frequency distribution of the BD gain as a percentage of the AB move in 5% increments up to 180%. If the Fibonacci extension believers are correct, then I should see spikes at 35% to 40%, around 50%, 60% to 65%, and so on.

There were no spikes. Only at 100% do we see a marginal increase in the number of hits from 264 at 95% to 277 at 100% and 223 at 105%. Based on this test, using a Fibonacci extension will not see price hit overhead resistance there. I also extended the frequency distribution up to 350%, but the percentage trend didn't change. There is no overhead resistance prevalent at any Fibonacci extension number.

Fibonacci extensions work no better at predicting where price is going to turn than any other percentage.

-- Thomas Bulkowski

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See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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