How Do I Analyze Fibonacci Extension Levels in Forex Trading?
How Do You Trade Fibonacci Extension Levels in Forex Trading?
Fibonacci expansion trading indicator is drawn using three chart points.
To draw Fibonacci Expansion zones on charts we wait until the price retracement is complete and the price starts heading in original direction of the trend. Where the market price pull-back gets-to is used as point 3.
The Fib expansion trading example below shows the three Chart Points where the Fibo expansion indicator is drawn, labeled as Point 1, 2 and 3. Point 1 is where trend started, Point 2 is where trend pulled back and retraced & Chart point 3 is where the price retracement reached as illustrated on the Fibo Expansion Trading Tool example below.
How Do I Trade with Fibonacci Expansion? Fibo Extension Strategy using Fib 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 Fibonacci Extension Levels - 61.8 % & 100% Fibo Extension Levels.
Drawing Fibo Extension Levels on an Upwards Trading Trend
We use Fib extension levels to try to estimate where trend move will get to. There are two important Fibo expansion levels: 61.8% and 100% Fib Extension Levels, these Fibo Expansion Levels are used for taking profit.
On the Fib expansion trading example below you can see that the Fibonacci expansion indicator is plotted along the direction of the trend, since the trend is upwards - the Fib extension trading indicator is drawn upwards.
These Fib extension levels are displayed as horizontal lines above Fib Extension technical indicator tool, showing profit booking zones. In the trading example below if you had used of 100% Fibonacci expansion level you would have made nice profit from the trade setup.
Drawing Fib Extension Levels on an Upwards Trend
From the above Fib expansion trading examples, the upward trend continued & 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 Fib Extension Areas on a Downward Trend
Since we use this Fibo expansion trading tool to estimate take-profit levels, how do we draw it in a downwards trend?
We draw the Fibo expansion indicator tool 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 trading example 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 Fibonacci Expansion indicator tool is plotted below. This time you'd also have used Fib extension zone 100%, just where the market price reached as shown on the trading example below. That would have been a good take profit order level.
Drawing Fib Extension Areas on a Downward Trend
From the Fibonacci expansion trading example above, after plotting this Fibonacci expansion tool there are two levels that are used to show the taking profit zones, these two Fibonacci expansion levels on the indicator are drawn as horizontal lines across the price chart.
How Do I Analyze Fibonacci Extension Levels in Forex Trading?
Get More Courses and Tutorials:
- Chandes Trendscore MetaTrader 4 Technical Indicator in MT4 Charts
- How Can I Add EU 50 on MetaTrader 4 App?
- How to Use MetaTrader 5 Bulls Power Technical Indicator on MetaTrader 5 Software
- IT40 Stock Indices Strategies List & Best IT40 Stock Indices Strategies to Trade IT40
- MetaTrader S&P Indices S&P 500 MT4 FX Trading Platform
- Stock Index Strategy Indicators Trade Strategy
- Tested & Recommended Gold Brokers for Trading with
- What are T3 Moving Average Buy and Sell Trading Signals?
- Doji Candlestick and Marubozu Candlestick Pattern
- IT40 Stock Indices Strategies List & Best IT40 Stock Indices Strategies to Trade IT40
