Gold Fibonacci Expansion Levels
We've looked at Fibonacci retracement in the previous course, drawn between 2 points. But to draw Fibonacci expansion we use 3 chart points.
To draw these levels we wait until the price retracement is complete & the price begins to head in original and initial direction of the trend. Where the pull-back gets to is used as point 3.
The example shown below shows the 3 Points where the Fibonacci extension is drawn, marked as 1, 2 and 3. 1 is where the market trend started, 2 is where the market trend pulled back & retraced & 3 is where the price retracement reached such as displayed in the example illustrated below.
Please note where these technical levels are drawn - they are drawn above the technical indicator, these are the points where the online trader will place and set the take-profits.
Drawing Extension Levels on an Upward Trend
We use Fibonacci expansion levels to gauge/estimate where the movement will reach. There are 2 important expansion levels: 61.80% and 100%, these are used for profit taking.
On the examples, below you as a trader can see that the Fibonacci extension is drawn along the direction of the market trend, since the market trend is upwards - the extension is drawn upward.
These levels are displayed as horizontal lines above the technical indicator, showing the profit taking levels. In the example shown below if you had used of 100 % extension you would have made nice profit from the trade.
NB: This is the same trade from the previous example where we used Fib retracement to buy at around retracement level 38.2 %. At the same time we have used Fibonacci extension 100% to set take profit. Now find a chart and practice these strategies.
From the examples put on display above, the upward trend continued & both 61.8 % and 100.0 % levels were all hit after which the price retraced again after getting to the 100.0% extension.
Drawing Extension Levels on a Downward Trend
Since we use this tool to estimate/gauge take profits, how do we draw it in a downwards trend?
We draw it from point 1 to 2 to 3 like as shown below. Remember we always plot this tool in the market direction of the market trend. In the example shown below, can you figure out what direction we have drawn it? That is right - downwards.
Try and see the difference between how we have drawn it above & how it's drawn below. This time you would also have used extension level 100%, see just where the price reached. That would have been a nice take-profit zone.
From the example put on display above, after plotting this tool there are 2 levels that are used to show the profit booking levels, these 2 are drawn as horizontal lines across the price chart.
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