Drawing Fibo Extension Levels on Upwards and Downward Trend

We have looked at Fib retracement in the previous learn Gold trading lesson, drawn between 2 chart points. But to plot Fib expansion levels we use 3 chart points.

To draw these levels we wait until the price retracement is complete & the XAUUSD metal starts and begins to move in the original direction of the XAUUSD price trend. Where the price retracement reaches and gets to is used as chart point 3.

The example laid-out below shows the 3 Points where the Fibonacci expansion levels trading indicator is drawn - marked & labeled as 1, 2 and 3. Point 1 is where the market trend started, Point 2 is where the market trend started to be pulled back and retraced and Point 3 is where the price retracement reached as put to display on the example laid-out below.

Fibonacci Extension Levels

Please take note where these Fibonacci expansion levels are plotted - they are drawn above the technical indicator, these are the points where the trader will set the takeprofit orders.

Drawing Fibo Extension Levels on an Upward Gold Price Trend

We use Fibonacci extension levels to estimate/gauge where the price movement will get to. There are 2 important extension levels: 61.8 % Fibonacci expansion level & 100 % Fib expansion level, these technical levels are used for booking profit.

On the example below you as a gold trader can see that the Fibonacci extension is plotted along the direction of the trend, since the trend is upwards - the Fibonacci expansion is plotted upwards.

These Fibonacci extension levels are displayed as horizontal lines above the technical indicator, showing profit taking and booking areas. In the example shown below if you had used of 100 % extension you would have made nice profit from the buy transaction.

NB: This is the same trade from the previous example where we used Fib retracement to buy at around retracement level 38.2 %Fib retracement. At the same time we have used Fib extension level 100 percentage to set take-profit. Now find a Gold price chart and practice these strategies.

Fib Expansion Levels Drawn on an Upward XAUUSD Price Trend

From the above examples, the upwards trend continued & both Fibonacci Expansion 61.8 % & 100.0 percent levels were all hit after which the price retraced again after touching the 100.0 percentage Fib extension level.

Drawing Fibo Expansion Levels on a Downward Gold Price Trend

Since we use this tool to estimate/gauge take profits, how do we draw it in a downward Gold price trend?

We plot Fib extension levels trading indicator from point 1 to 2 to three just as is shown below. Remember we always plot this tool in the market direction of the market trend. In the example laid-out below, can you figure what direction we've drawn it? That is right - downwards because the market trend is downwards.Try & see the difference between how we've drawn it above & how it is drawn below. This time you would also have used Fib extension level 100%, see just where the price reached. That would have been a good take profit area.

Fib Expansion Levels Drawn on a Downward XAUUSD Trend

From the above example, after plotting this Fibonacci expansion tool there are 2 levels that are used to display the profit taking and booking areas, these 2 levels are plotted as horizontal lines across the price chart (these levels are 61.8 % Fibonacci expansion level & 100 % Fib extension level like is shown above).

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