the hAnDbook oF teChnICAl AnAlysIsThe formula for calculating upside extension levels above a given price range is:Trough (Price Range Extension Ratio)+ ×In our example, the observed the price range AB is:
Price Range Peak Trough
A B
115 85
30=−
=−
=−
=
$ $
$
(Note: We always subtract the trough from the peak, regardless of whether it
is for a downside or upside extension calculation, as the price range must always
be a positive value.)
The 127.2 percent upside extension level is:=+ ×
=+ ×
=Trough Price Range Extension Ratio
B Price Range 1 272( )
(. )
$885 30 1 272
123 16
+×
=
($. )
$.
The 161.8 percent upside extension level is:=+ ×
=+ ×
=Trough Price Range Extension Ratio
B Price Range 1 618( )
(. )
$885 30 1 618
133 54
+×
=
($. )
$.
The 261.8 percent upside extension level is:
=+ ×
=+ ×
=Trough Price Range Extension Ratio
B Price Range 2 618( )
(. )
$885 30 2 618
163 54
+×
=
($. )
$.
10.5.2 Calculating potential support via Fibonacci
Downside extension Levels
When calculating Fibonacci downside extension levels, we shall, by convention,
use the peak as the base for calculating all downside extensions levels.
Assume that the significant trough and peak of an observed retracement range
are point A and point B, respectively. Assume that the peak at point B is at the
price level of $236 and that the trough at point A is at $186. Refer to Figure 10.23
as a visualization guide.
The formula for calculating downside extension levels below a given price range is:
Peak (Price Range Extension Ratio)− ×