Fibonacci extensions are mathematical price projection levels (1.618, 2.618, 4.236) used to identify potential profit targets beyond previous price highs in trending markets. These levels are calculated by measuring a swing low to swing high move, then projecting where price might encounter resistance during the next rally phase. The 1.618 "golden ratio" extension is the most watched by institutional traders and algorithms, creating self-fulfilling resistance zones where profit-taking naturally clusters.
Example:
Bitcoin rallied from $76,000 (swing low in April 2025) to $124,000 (swing high in August), then pulled back to $85,000 before resuming its uptrend. Drawing Fibonacci extensions from this A-B-C pattern projected the 1.618 level at $126,200. In October 2025, Bitcoin peaked at $126,210, within $10 of the Fibonacci extension target, before crashing 14%. Traders who set profit targets at this mathematical level captured the top, while those waiting for round-number targets like $150,000 or $200,000 missed the actual resistance zone.