Elliott Wave Theory is a popular method of technical analysis that helps traders identify patterns and potential price movements in financial markets. One of the key tools used in Elliott Wave analysis is Fibonacci retracement and extension levels. In this blog post, we will delve into the process of projecting these levels for Wave 2, Wave 3, Wave 4, and Wave 5, providing you with a comprehensive understanding of how to utilize Fibonacci projections effectively.

For a more comprehensive understanding of basic Elliott Wave Theory click HERE.

1. Projecting Fibonacci Retracement Levels for Wave 2:

• Identify the starting point of Wave 1, the initial impulse wave in the direction of the overall trend.
• Determine the end point of Wave 1, the peak or trough of the first wave.
• Draw Fibonacci retracement levels (typically 38.2%, 50%, 61.8%, and 78.6%) between the starting and ending points of Wave 1.
• Extend the Fibonacci retracement lines to the right, projecting potential retracement levels for Wave 2.
• Monitor price action to observe how price interacts with the projected Fibonacci retracement levels.

2. Projecting Wave 3 Targets with Fibonacci Extensions:

• Identify the starting point of Wave 1 and determine the end point of Wave 1.
• Draw Fibonacci extensions (161.8%, 200%, and 261.8%) from the starting point of Wave 1 to the ending point of Wave 1.
• Monitor price action as Wave 3 begins, observing how price behaves around the projected Fibonacci extension levels.
• Combine Fibonacci extensions with other technical indicators and market conditions for validation.

3. Projecting Fibonacci Retracement Levels for Wave 4:

• Identify the end point of Wave 3, the peak or trough that marks the completion of the third wave.
• Determine the start point of Wave 4, the preceding trough or peak that marks the end of Wave 2.
• Draw Fibonacci retracement levels (such as 38.2%, 50%, and 61.8%) between the start and end points of Wave 3.
• Extend the Fibonacci retracement lines to the right, projecting potential retracement levels for Wave 4.
• Monitor price action as Wave 4 begins, observing how price interacts with the projected Fibonacci retracement levels.

4. Projecting Wave 5 Targets with Fibonacci Extensions:

• Identify the end point of Wave 4, the trough or peak that marks the completion of Wave 4.
• Determine the start point of Wave 4, the preceding peak or trough that marks the end of Wave 3.
• Draw Fibonacci extension levels (such as 127.2%, 161.8%, 200%, and 261.8%) from the start point of Wave 4 to the end point of Wave 4.
• Monitor price action as Wave 5 starts, observing how price behaves around the projected Fibonacci extension levels.
• Validate the projected targets with additional technical analysis tools and market conditions.

Fibonacci retracement and extension levels are valuable tools in Elliott Wave analysis. By following the steps outlined in this blog post, you can gain insights into potential retracement zones, price targets, and areas of support or resistance within the Elliott Wave structure. However, it's essential to remember that Elliott Wave Theory is subjective, and market behavior can deviate from expected patterns. Therefore, it's crucial to combine Fibonacci projections with other analysis techniques and risk management strategies for well-informed trading decisions.