How Do You Analyze/Interpret Fib Levels in Forex Trading?
How Do You Trade Fib Extension Levels in Forex Trading?
Fib expansion indicator is drawn using three chart points.
To draw Fibo Expansion zones on charts we wait until the price retracement is complete and the price starts and begins heading in original direction of the trend. Where the price pull back gets to is used as point 3.
The Fib expansion trading illustration set-out below shows the three Chart Points where the Fibo expansion indicator is drawn, labeled as Point 1, 2 & 3. Point 1 is where trend started, Point 2 is where trend pulled back and retraced and Chart point 3 is where the price retracement reached as shown on the Fibo Expansion Trading Tool exemplification laid-out below.
How Do I Trade with Fib Expansion? Fibo Extension Strategy using Fibonacci Extension Levels
Please note where these Fibo Expansion zones are plotted on the chart - Fibo Expansion levels are plotted above the Fib Indicator, these are the areas where trader will set take-profits using these Fib Extension Levels - 61.8 % and 100% Fibonacci Extension Levels.
Drawing Fibonacci Extension Levels on an Upwards Trading Trend
We use Fibo extension levels to try to estimate where trend move will get to and reach. There are 2 important Fib expansion levels: 61.8% and 100% Fib Extension Levels, these Fibo Expansion Levels are used for taking profit.
On the Fib expansion trading illustration set-out below you as a trader can see that the Fibonacci expansion indicator is plotted along the direction of the trend, since the trend is upward - the Fib extension indicator is drawn upwards.
These Fib extension levels are displayed as horizontal lines above Fibonacci technical tool, showing profit booking zones. In the trading illustration set-out below if you had used of 100% Fibonacci expansion level you would have made nice profit from the trade transaction setup.
Drawing Fibonacci Extension Levels on an Upward Trend
From the above Fib expansion trading examples, the upward trend continued and both 61.80% and 100.00% Fibonacci expansion levels were all hit after which price retraced again after getting to the 100.0 % Fibo Expansion zone.
Drawing Fibonacci Areas on a Downward Trend
Since we use this Fib expansion trading tool to estimate take-profit levels, how do we draw it in a downwards trend?
We draw the Fibo expansion indicator from chart point 1 to two to 3 as pictured below. Remember we always draw this Fibonacci expansion trading tool in direction of the trend. In the Fibonacci expansion example illustration set-out below, can you figure out what direction we have drawn it? That is right - downwards direction.
Try & identify the difference between how we've drawn Fibonacci expansion levels above and how Fibo Expansion indicator is plotted below. This time you'd also have used Fibonacci extension zone 100%, just where the price reached as displayed & shown on the trading illustration put on display below. That would have been a good take profit order level.
Drawing Fibonacci Extension Areas on a Downward Trend
From the Fibonacci expansion trading example illustration put on display above, after plotting this Fibonacci expansion tool there are 2 levels that are used to show the taking and booking profit zones, these 2 Fibonacci expansion levels on the indicator are drawn as horizontal lines across the price chart.
How Do You Analyze/Interpret Fib Levels in Forex Trading?
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