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