Gold Fib Expansion Levels
We have looked at Fibonacci retracement in the previous course, drawn between 2 points. But to draw Fibonacci expansion we use Three chart points.
To draw these levels we wait until the retracement is complete & the price begins to head in original direction of 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 trend started, 2 is where the market trend pulled back & retraced & 3 is where the retracement reached as displayed on the example illustrated below.
Please note where these levels are drawn - they are drawn above the indicator, these are the points where the trader will place the takeprofit orders.
Drawing Expansion Levels on an Upwards Trend
We use Fibonacci extension levels to estimate where the movement will reach. There are two important extension levels: 61.80% and 100%, these are used for profit taking.
On the examples, below you can see that the Fibonacci extension is drawn along the direction of the market trend, since the trend is upwards - the expansion is drawn upwards.
These levels are displayed as horizontal lines above the indicator, showing the profit booking 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 Fibonacci retracement to buy at around retracement level 38.2 %. At the same time we have used Fib expansion 100% to set take profit. Now find a chart and practice these strategies.
From the examples above, the upward trend continued and both 61.8 % and 100.0 % levels were all hit after which price retraced again after getting to the 100.0% extension.
Drawing Expansion Levels on a Downward Trend
Since we use this tool to estimate take profits, how do we draw it in a downward trend?
We draw it from point 1 to 2 to 3 as shown below. Remember we always plot this tool in the direction of the trend. In the example shown below, can you figure what direction we have drawn it? That is right - downwards.
Try and see the difference between how we have drawn it above & how it is 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 above, after plotting this tool there are two levels that are used to show the profit booking levels, these two are drawn as horizontal lines across the price chart.
