How Do I Analyze Fibonacci Extension Levels in Forex Trading?
How Do You Trade Fibonacci Extension Levels in Forex Trading?
Fibonacci expansion indicator is drawn using 3 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 trend. Where the price pullback gets-to is used as point 3.
The Fib expansion trading example below shows the 3 Chart Points where the Fibo expansion indicator is plotted, 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 Expansion Strategy using Fib Expansion 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-profit orders using these Fibonacci Expansion Levels - 61.8% & 100% Fibo Expansion Levels.
Drawing Fibo Extension Levels on an Upwards Trading Trend
We use Fib expansion 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 Extension 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 up-wards - the Fib expansion indicator is drawn upward.
These Fib expansion levels are displayed as horizontal lines above Fib Expansion 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 Expansion 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 down-wards 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 what direction we have plotted it? That is right - down-wards direction.
Try & identify the difference between how we have drawn Fibonacci expansion levels above and how Fibonacci Expansion indicator tool is plotted below. This time you'd also have used Fib expansion zone 100 %, just where the price reached as pictured on the trading example below. That would have been a good take-profit level.
Drawing Fib Expansion 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?
