Fibonacci tools are everywhere in technical analysis—and they’re also some of the most misunderstood. One reason is simple: many charting platforms label similar-looking tools in confusing ways, so traders end up using different instruments while thinking they’re doing the same thing.

If you’ve ever compared charts and noticed two “extension” drawing styles:

  • Origin → Point A → Point B (three clicks), versus
  • Origin → Point A → Origin (the third click goes back to the start),

you’re not alone. They can look like variations of the same technique, but they’re built on different assumptions and answer different trading questions.

Most importantly: if what you’re trying to project is the target after an ABC correction / zig-zag structure (a push, a pullback, then continuation), there’s one method that is structurally consistent and widely considered the “legit” approach:

Use the 3-point, trend-based Fibonacci extension (also called expansion).

This article breaks down both approaches, explains when each is appropriate, and shows why “Origin–A–Origin” is usually a misuse for trade targeting in an ABC context.

Why there seem to be “two correct ways”: you’re often looking at two different tools

The confusion isn’t just trader preference—it’s tooling.

Many platforms (TradingView, MT4/MT5, etc.) present multiple Fibonacci-based drawing tools with overlapping names such as Extension, Expansion, Projection, or they encourage “extensions” by enabling retracement levels above 1.0. As a result:

  • You think you’re drawing an extension,
  • but you might actually be drawing an external retracement (a breakout projection), or
  • using a 3-point tool with a 2-point mindset.

A key principle that resolves most debates:

What looks like “two drawing styles” is often two different concepts—each valid in its own context.

Let’s define them clearly.

Method 1 (ABC targeting): The 3-point “Trend-Based Fibonacci Extension / Expansion”

1) What it measures (the logic)

The 3-point extension measures the size of the first impulse leg (often labeled Leg A), then projects that distance (or a Fibonacci multiple of it) from the end of the pullback (Point B) to estimate where the continuation leg (Leg C) may reach.

In an ABC-style move (downtrend example):

  • A: Price drops (impulse leg)
  • B: Price bounces (pullback / retracement)
  • C: Price drops again (continuation leg)

The market often exhibits symmetry or proportionality—C may relate to A by common ratios:

  • 1.0 (100%): C≈AC \approx A
  • 1.272, 1.618, etc.: Fibonacci multiples of A

This makes the trend-based extension ideal for ABC corrections, zig-zags, pullback-then-continuation setups, and other structure-driven projections.

2) How to draw it (short-trade ABC example)

You need three points, in this order:

  1. Click 1: Origin (Start of the move)
    The swing high where the decline begins (the start of Leg A).
  2. Click 2: Point A (End of the first impulse)
    The swing low where the initial drop ends (end of Leg A).
  3. Click 3: Point B (End of the pullback)
    The pullback high (a lower high in a downtrend), where the bounce stalls and sellers regain control.

Once drawn, the tool projects extension levels from Point B using the measured length of the Origin→A move.

3) Why this is the “proper” ABC extension method

Because it includes Point B—the pullback matters.

Markets don’t move in straight lines. The depth of the pullback changes the context and often changes where realistic targets and decision points sit. The 3-point method adapts to structure:

  • Deeper pullback (higher B in a downtrend) → projection starts higher → targets shift upward
  • Shallow pullback (lower B) → projection starts lower → targets shift downward

That’s exactly what you want when you’re projecting a continuation leg that starts after a retracement.

4) How to interpret common levels

While traders use different level sets, two levels are widely referenced:

  • 1.0 (100%): “C equals A”
    The cleanest symmetry target: the continuation leg matches the first impulse in magnitude.
  • 0.618 (61.8%): a frequent “internal hurdle”
    Many traders treat it as an intermediate objective, reaction zone, or structure checkpoint—especially if it aligns with prior support/resistance or liquidity.

(Exact numeric examples vary by instrument and swing selection, but the interpretation remains consistent.)

Method 2 (breakout projection): 2-point “External Retracement” using a standard Fib retracement tool

1) What it measures (and what it ignores)

The 2-point approach typically uses a standard Fibonacci retracement tool, but with extension levels enabled above 1.0 (e.g., 1.272, 1.618). This is often called External Retracement or simply “extension levels from a retracement tool.”

Its logic is different:

“If price breaks beyond the prior swing low/high, how far might it travel beyond that boundary?”

This approach generally:

  • uses only two points (high and low),
  • projects beyond the prior extreme,
  • and does not incorporate the pullback (Point B) as a required structural element.

So it’s not an ABC symmetry calculation—it’s a breakout/trend acceleration measurement.

2) How to draw it

  1. Click 1: Swing high
  2. Click 2: Swing low
  3. Enable levels above 1.0 (commonly 1.272, 1.618)

That’s it—no third click.

3) When the 2-point method is appropriate

Use this when the market is behaving like a clean breakout / breakdown with minimal pullback, for example:

  • Support/resistance is being smashed through,
  • retracements are small or nonexistent,
  • price is in a momentum expansion phase.

In those conditions, insisting on an ABC framework may be forced; the breakout projection can be a more relevant “how far can it run?” estimate.

Why “Origin → Point A → Origin” is usually a mistake (and what it actually does)

You mentioned seeing people draw Origin → A → Origin using a 3-point extension tool.

In most cases, this is not meaningful for post-pullback targeting because:

  • the third point is supposed to represent Point B (the pullback end),
  • but clicking back on Origin removes the pullback from the projection logic,
  • and can cause the tool to “project” from a point that doesn’t reflect where the next leg actually begins.

Put simply:

In an ABC move, the question is “where might price go after the pullback ends?”
If you don’t anchor the projection to Point B, you’re not answering that question.

A related misuse: Origin → A → A (overly aggressive “straight-line continuation” assumption)

Sometimes traders don’t click back to Origin—they click the third point onto Point A (or something close), effectively projecting as if:

  • there will be little to no pullback,
  • price will cascade in a near-straight line.

This can produce targets that are too aggressive in volatile markets (where sharp counter-moves are common), and it can disconnect your target from the actual structure you’re trading.

Which method should you use? A practical decision rule

A simple way to decide:

  • If you are trading pullback-then-continuation (ABC / zig-zag / retracement then break):
    → Use the 3-point Trend-Based Fib Extension.
  • If you are trading a clean breakout/breakdown with little pullback:
    → Consider the 2-point external retracement (retracement tool with levels > 1.0).

If your scenario is explicitly “after a bounce, price breaks down again” (classic ABC continuation), the 3-point method is the structurally consistent choice.

Quick checklist: drawing the 3-point extension correctly (minimal-error version)

  1. Select Trend-Based Fib Extension / Fib Expansion
  2. Click in order (short example):
    • Swing high (start of the selloff) = Origin
    • Swing low (end of first drop) = A
    • Pullback high (end of bounce / lower high) = B
  3. Read key levels:
    • 1.0: symmetry target where C≈AC \approx A
    • 0.618: intermediate checkpoint / reaction zone

Key takeaway: “Correct” depends on the question you’re asking

Fibonacci drawing is not “anything goes.” Each method is valid only insofar as it matches the market question you’re trying to answer.

  • ABC structure target (needs the pullback) → 3-point trend-based extension
  • Breakout distance estimate (ignores the pullback) → 2-point external retracement

The most important insight is this:

In pullback-then-continuation markets, the third click is not optional.
Point B is not decoration—it’s the anchor that makes the projection structurally meaningful.

If you share the specific swing you’re measuring (or a screenshot and whether you’re long/short), I can help you label Origin / A / B precisely and avoid the most common source of Fib errors: inconsistent swing selection (wicks vs bodies, micro vs major swings, and competing highs/lows).