How Do I Trade with Fibonacci Expansion
Fib expansion is drawn using 3 chart points.
To draw Fibo Expansion areas we wait until the price retracement is complete and the price starts to head in original direction of trend. Where the retracement reaches is used as chart point 3.
The Fibo expansion example illustrated & shown below shows the 3 Chart Points where the Fibo expansion indicator is plotted, labeled as Chart point 1, 2 and 3. Point 1 is where the trend started, Point 2 is where the market trend pulled back and retraced and Chart point 3 is where the retracement reached as portrayed on the Fibo Expansion Tool example illustrated below.
XAUUSD Trade with Fibonacci Expansion?
Please note where these Fibo Expansion zones are plotted - Fibo Expansion zones are plotted above the Fibo Technical Indicator, these are points where the trader will set the take-profit orders using these Fibo Extension Levels - 61.80% and 100% Fibo Expansion Areas.
Drawing Fib Extension Levels on an Upward Trend
We use Fibonacci expansion areas to try to project where market trend movement will get to. There are two important Fib expansion levels: 61.8% & 100% Fibo Expansion Areas, these are used for taking profit.
On the Fib expansion example shown below you can see that the Fibonacci expansion technical indicator is drawn along the direction of the trend, since the trend is upward - the Fib expansion is drawn upwards.
These Fibonacci expansion levels are displayed as horizontal lines above Fibo Expansion technical indicator, showing the profit taking areas. In the example shown below if you had used of 100% Fibonacci expansion you would have made nice profit from the trade setup.
Drawing Fibo Extension Levels on an Upwards Trend - Fibo Expansion Strategies in XAUUSD
From the above Fib expansion examples, the up-ward trend continued & both 61.8 % & 100.00% Fibo extension levels were all hit after which price retraced again after getting to the 100.0 % Fibo Expansion area.
Drawing Fib Extension Levels on a Downwards Trend
Since we use this Fib expansion tool to estimate takeprofit areas, how do we draw it in a down-wards trend?
We draw the Fib expansion indicator tool from chart point 1 to two to 3 as pictured below. Remember we always draw this Fibo expansion tool in the direction of the market trend. In the Fibonacci expansion example shown below, can you figure what direction we have plotted it? That is right - down-wards direction.
Try & spot difference between how we have drawn Fibonacci expansion above and how Fibo Expansion is drawn below. This time you'd also have used Fibonacci expansion level 100 %, just where the price reached as shown on the example shown below. That would have been a nice takeprofit area.
Drawing Fibo Extension Levels on a Downwards Trend - Fibo Expansion Strategies in XAUUSD
From Fib expansion example above, after drawing this Fib expansion tool there are 2 levels which are used to show the profit taking areas, these two Fibo extension levels are plotted as horizontal lines across the price chart.
