Fibonacci Number and Ratio Analysis
As we have seen in the previous section, an upside extension is defined as a
percentage extension of the observed price range above its previous significant
peak, and is never measured below its previous significant trough. Similarly, a
downside extension is defined as a percentage extension of the observed price
range below its previous significant trough, and is never measured above its previ-
ous significant peak.
But in expansions, the extensions are measured in the opposite direction. In
the case of an upside expansion, price exceeds the observed price range where the
significant trough occurs prior to the significant peak. For downside expansions,
price extends below the observed price range where the significant peak occurs
prior to the significant trough. See Figures 10.9 and 10.10.
From a certain perspective, an upside price expansion may also be regarded,
for all practical purposes, as an inverted or failed downside extension. It starts
off as a downside extension, with future price action expected to retrace belowFigure 10.8 Upside Extension beyond a Price Range.Figure 10.9 Relationship between Upside Retracement, Upside Extensions, and
Downside Expansion with Respect to the Observed Price Range.