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