Drawing Fibonacci Extension Levels on Upward and Downward Gold Trend

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

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

The example below shows the 3 Points where the Fibonacci expansion levels trading indicator is drawn - marked as 1, 2 and 3. Point 1 is where the trend started, Point 2 is where the trend started to be pulled back and retraced and Point 3 is where the retracement reached as shown on example 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 Fibonacci Extension Levels on an Upward Gold Price Trend

We use Fib extension levels to estimate where the movement will reach. There are 2 important extension levels: 61.8 % Fibonacci expansion level and 100 % Fibonacci expansion level, these levels are used for taking profit.

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

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

NB: This is the same trade from the previous example where we used Fibonacci retracement to buy at around retracement level 38.2 %Fibonacci retracement level. 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.

Fibonacci Expansion Levels Drawn on an Upward XAUUSD Price Trend

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

Drawing Fibonacci Expansion Levels on a Downward Gold Price Trend

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

We plot Fibonacci extension levels trading indicator from point 1 to 2 to three as shown below. Remember we always plot this tool in the direction of the trend. In the example below, can you figure what direction we've drawn it? That is right - downwards because the trend is downwards.Try and 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 nice take profit area.

Fibonacci Expansion Levels Drawn on a Downward XAUUSD Trend

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

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