How Do I Trade with Fibonacci Extension? - Fib Extension Levels Strategy

Fib Extension Strategies - Trading with Fib Extension Indicator

Fib extension levels indicator is drawn using Three chart points.

To draw Fibo Extension areas we wait until the price retracement is complete and price starts heading in original direction of trend. Where the pullback gets-to is used as chart point 3.

The Fibonacci extension example below shows the 3 Chart Points where the Fib extension 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 and Chart point 3 is where the retracement reached as portrayed on the Fib Extension Indicator example below.

How Do You Trade with Fib Extension? Fib Extension Strategy using Fibo Extension Levels

Please note where these Fib Extension areas are drawn - Fib Extension zones are plotted above the Fibo Indicator, these are the points where the trader will place the takeprofit orders using these Fibo Extension Levels - 61.8% & 100% Fib Extension Levels.

Drawing Fibo Extension Zones on an Upwards 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 Expansion Levels, these are used for taking profit.

On the Fibonacci extension example below you can see that the Fibonacci extension indicator is plotted along the direction of the trend, since the trend is up-wards - the Fibonacci extension is also drawn upwards.

These Fib extension levels are displayed as horizontal lines above Fib Extension indicator, showing profit booking zones. In the example below if you had used of 100% Fibonacci extension you would have made nice profit from the trade set-up.

Drawing Fibo Extension Zones on an Upwards Trend - Fib Extension Strategies in Forex Trading

From the above Fibonacci extension examples, the upward trend continued & both 61.80% and 100.00% Fibonacci extension levels were all hit after which price retraced again after getting to the 100.0% Fib Extension level.

Drawing Fibo Extension Levels on a Downwards Trend

Since we use this Fibo extension indicator tool to estimate take-profit levels, how do we draw it in a downward trend?

We draw the Fib extension indicator tool from chart point 1 to two to 3 as pictured below. Remember we always draw this Fib extension tool in direction of the trend. In the Fib extension example below, can you figure what direction we have drawn it? That is right - downward direction.

Try & identify the difference between how we have drawn the Fibo extension above & how Fibo Extension is plotted below. This time you would also have used Fib extension area 100%, just where the price reached as shown on example below. That would have been a good take-profit level.

Drawing Fibonacci Extension Levels on Downward Trend - Fibonacci Extension Strategies

From the Fib extension example above, after drawing this Fibonacci extension tool there are 2 levels that are used to show the taking profit zones, these two Fibonacci extension levels are plotted as horizontal lines across the price chart.