Fib Extension Levels - Forex Analysis of Fib Extension Levels in Forex Charts

We have looked at Fibonacci retracement levels in the previous lesson, Fib Retracement is drawn between 2 points. But to draw Fib Expansion we use 3 chart points to draw Fibonacci Expansion.

To draw these Fib Expansion levels we wait until the forex trading price retracement is complete & the currency pair starts to move in the original direction of the trend. Where the price retracement reaches is used as point 3 for drawing the Fibonacci Expansion.

The forex trading example below shows the 3 Points where the Fib Extension is drawn, marked as points 1, 2 and 3. 1 is where the forex trend started, 2 is where the forex trend pulled back & retraced & 3 is where the price retracement reached as shown on example below.

Please note where these Fib Expansion levels are drawn - they are drawn above the Fib Expansion indicator, these are the points where the trader will place the takeprofit orders.

Drawing Fib Expansion Zones Indicator on an Upwards Trend

We use Fib Extension Zones to estimate where the price movement will reach. There are 2 important Fib Expansion areas: 61.8 % Fibonacci Expansion and 100 % Fibonacci Expansion, these levels are used for taking profit and for setting take profits orders.

On the forex trading example below you can see that the Fib Extension is drawn along the direction of the trend, since the trend is upward - the Fib Expansion is drawn upwards.

These Fibo Expansion areas are displayed as horizontal lines above the Fib Expansion indicator, showing the profit taking areas. In the example below if you had used of 100 % Fib Expansion Level you would have made nice profit from the trade.

NB: This is the same trade from the previous example where we used Fibonacci retracement to buy at around Fibo Retracement Level 38.2 %. At the same time we have used Fibo Expansion 100 % level to set take profit level. Now find a forex chart & practice these strategies.

From the above forex trading examples, the upward trend continued and both 61.8 % and 100.0 % Fib Extension Levels were all hit after which price retraced again after hitting the 100.0 % Fib Expansion Level.

Drawing Fib Expansion Zones Indicator on a Downwards Trend

Since we use this Fibo Expansion tool to estimate take profit levels, how do we draw it in a down-wards trend?

We draw Fib Expansion from point 1 to 2 to 3 as shown below. Remember we always draw this Fibo Expansion tool in direction of the market trend. In the example below, can you figure what direction we have drawn it? That is right - downwards.

Try and see the difference between how we have drawn Fib Expansion above and how it is drawn below. This time you would also have used Fibo Expansion Level 100 %, see just where the price reached. That would have been a nice take profit setting area.

From the example above, after drawing this Fibo Expansion tool there are 2 levels that are used to show the profit taking areas, these two levels are drawn as horizontal lines across the forex price chart.