Fibonacci Time Extensions are used to predict periods of price change (i.e. lows or highs). For example, after a downtrend, a reversal would be expected at a significant Fibonacci Time Extension line. Similarly, after an uptrend, a reversal warning could occur if a Fibonacci Time Extension was soon approaching.
The Fibonacci Time Extension tool is created by locating a significant high (low) and finding a significant retracement or extension low (high). The major Fibonacci ratios are then calculated and plotted by charting software.
An example of a Fibonacci Time Extension is shown below in the chart below of the S&P 500 exchange-traded fund (SPY):
Fibonocci Tools are very popular, possibly the very reason that they appear to work. Whether or not a trader believes Fibonacci ratios work beyond nature and into the financial markets, traders should be aware of Fibonocci Retracements (most often used) and the other Fibonocci Tools.
Because there are many traders out there who do believe that the Fibonacci ratios apply to the financial markets, that means there are real supply and demand forces working on the markets at these important Fibonacci junctures. This is important because, after all, supply and demand is the concept that moves the markets.
