How Do You Trade with Fibonacci Extension? - Fibonacci Extension Levels Strategy
Fibonacci Extension Strategies - Trading with Fibonacci Extension Indicator
Fib extension levels indicator is drawn using Three chart points.
To draw Fibonacci Extension zones we wait until the price retracement is complete & the price starts to move in original direction of the Forex trend. Where the retracement reaches is used as chart point 3.
The Fibonacci extension example below shows the 3 Chart Points where the Fibonacci extension technical indicator is drawn, marked as Chart point 1, 2 and 3. Chart point 1 is where the forex trend started, Chart point 2 is where the forex trend pulled back & retraced and Chart point 3 is where the forex retracement reached as displayed on the Fibonacci Extension Indicator example below.
How Do You Trade with Fibonacci Extension? Fibonacci Extension Strategy using Fibonacci Extension Levels
Please note where these Fibo Extension areas are drawn - Fibo 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% Fibonacci Extension Levels.
Drawing Fibonacci 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% Fibo Extension Levels, these are used for taking profit.
On the Fibonacci extension example below you can see that the Fibonacci extension technical indicator is plotted along the direction of the trend, since the trend is upwards - the Fibonacci extension is also drawn upwards.
These Fib extension levels are displayed as horizontal lines above Fibonacci Extension indicator, showing profit taking areas. In the forex example below if you had used of 100% Fibonacci extension you would have made nice profit from the trade set-up.
Drawing Fibonacci Extension Zones on an Upwards Forex 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 % Fibonacci Extension level.
Drawing Fibonacci Extension Levels on a Downwards Forex Trend
Since we use this Fibo extension indicator tool to estimate 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 draw this Fibonacci extension tool in direction of the trend. In the Fibonacci extension example below, can you figure what direction we have drawn it? That is right - downwards direction.
Try and identify 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 shown on example below. That would have been a nice take profit area.
Drawing Fibonacci Extension Levels on Downward Forex Trend - Fib Extension Strategies
From the Fibonacci extension example above, after plotting this Fibonacci extension tool there are 2 levels that are used to show the profit taking areas, these two Fibonacci extension levels are plotted as horizontal lines across the forex price chart.
