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