<h2>Fibonacci Extensions</h2>
<p>Fibonacci Extensions are a popular technical analysis tool used by traders to identify potential resistance and support levels in the market. They are based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding ones (0, 1, 1, 2, 3, 5, 8, 13, ...).</p>

<h2>How It Works</h2>
<p>To draw Fibonacci Extensions, traders first need to identify a significant price movement, known as an impulse wave. This wave has a starting point (A) and an ending point (B). The Fibonacci tool is then applied from point A to point B. The most common Fibonacci Extension levels are:</p>
<ul>
  <li>127.2% Extension</li>
  <li>161.8% Extension</li>
  <li>261.8% Extension</li>
</ul>
<p>These levels are calculated by multiplying the length of the impulse wave (B-A) by the respective Fibonacci ratios (1.272, 1.618, and 2.618). The 127.2% Extension is often considered the first level of resistance, while the 161.8% and 261.8% Extensions are seen as stronger resistance levels.</p>

<h2>Why It Matters for Traders</h2>
<p>Fibonacci Extensions can help traders in several ways:</p>
<ul>
  <li><strong>Identifying Potential Reversal Zones</strong>: Traders can use Fibonacci Extensions to identify areas where the price might reverse or consolidate, providing potential entry and exit points for trades.</li>
  <li><strong>Setting Price Targets</strong>: Once a reversal is confirmed, traders can use the Fibonacci Extension levels to set price targets for their trades.</li>
  <li><strong>Risk Management</strong>: Fibonacci Extensions can help traders place stop-loss orders more effectively by identifying potential support and resistance levels.</li>
</ul>

<h2>Example</h2>
<p>Let's say a trader identifies an impulse wave on the EUR/USD pair, with point A at 1.1000 and point B at 1.2000. The length of the impulse wave is 1000 pips. Applying the Fibonacci Extension tool, we get:</p>
<table>
  <tr>
    <th>Fibonacci Level</th>
    <th>Price Level</th>
  </tr>
  <tr>
    <td>127.2% Extension</td>
    <td>1.3272</td>
  </tr>
  <tr>
    <td>161.8% Extension</td>
    <td>1.3618</td>
  </tr>
  <tr>
    <td>261.8% Extension</td>
    <td>1.4618</td>
  </tr>
</table>
<p>In this case, the trader might expect the price to find resistance around 1.3272, 1.3618, or 1.4618, and potentially reverse or consolidate at these levels.</p>

<h2>Key Takeaways</h2>
<ul>
  <li>Fibonacci Extensions are based on the Fibonacci sequence and are used to identify potential resistance and support levels.</li>
  <li>The most common Fibonacci Extension levels are 127.2%, 161.8%, and 261.8% of the impulse wave's length.</li>
  <li>Traders can use Fibonacci Extensions to identify potential reversal zones, set price targets, and manage risk.</li>
</ul>