How Do I Trade with Fibonacci Extension?
Fibonacci Extension Strategies in XAUUSD Trading
Fibonacci extension levels indicator is drawn using Three chart points.
To draw Fib Extension areas we wait until the price retracement is complete and price starts to move in original direction of the trend. Where the retracement reaches is used as the chart point 3.
The Fib extension example depicted and explained below portrays the Three Chart Points where the Fibonacci extension indicator is drawn, labeled as Chart point 1, 2 and 3. Point 1 is where the trend started, Point 2 is where the market trend pulled back and retraced & Chart point 3 is where the retracement reached as displayed on the Fibonacci Extension Indicator example depicted & described below.
How Do You Trade with Fib Extension?
Please note where these Fibo Extension levels are drawn - Fibonacci Extension zones are plotted above the Fibo Indicator, these are the points where the trader will place the take-profit orders using these Fibo Extension Levels - 61.8% & 100% Fibonacci Extension Levels.
Drawing Fibo Extension Zones on an Upwards Trend
We use Fibonacci extension levels to try to estimate where market trend movement will reach. There are Two critical Fib extension levels: 61.8% & 100% Fib Extension Areas, these are used for taking profit.
On the Fib extension example depicted and explained below you can see that the Fibonacci extension technical indicator is drawn 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 technical indicator, showing profit taking areas. In the examples illustrated and described below if you had used the 100% Fibo extension you would have made nice profit from using this setup.
Drawing Fib Extension Zones on an Upwards Trend - Fib Extension Strategies in Gold 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 percent Fibonacci Extension level.
Drawing Fibo Extension Levels on a Downward Trend
Since we use this Fibo extension indicator tool to estimate takeprofit areas, how do we draw it in a downwards trend?
We draw the Fib extension indicator from chart point 1 to 2 to Three as illustrated below. Remember we always draw this Fib extension tool in the direction of the trend. In the Fib extension example depicted & explained below, can you figure what direction we have drawn it? That is right - downwards direction.
Try & spot difference between how we have drawn the Fibonacci extension above & how Fib Extension is drawn below. This time you'd also have used Fibonacci extension area 100 percent, just where price reached as shown on the example displayed & described below. That would have been a nice takeprofit area.
Drawing Fibo Extension Levels on a Downward Trend
From the Fibonacci extension example above, after drawing this Fibonacci extension tool there are two levels that are used to show the profit taking areas, these two Fib extension levels are drawn as horizontal lines across the price chart.
