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 Fibonacci Extension zones we wait until the xauusd price retracement is complete & the price starts to move in original direction of the Gold trend. Where the retracement reaches is used as chart point 3.
The Fibonacci extension example illustrated and explained 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 gold trend started, Chart point 2 is where the gold trend pulled back & retraced and Chart point 3 is where the gold retracement reached as displayed on the Fibonacci Extension Indicator example illustrated & described below.
How Do You Trade with Fibonacci Extension?
Please note where these Fibo Extension levels are drawn - Fibo 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 Fib Extension Zones on an Upwards XAUUSD Trend
We use Fibonacci extension levels to estimate where the market trend movement will reach. There are Two important Fibonacci extension levels: 61.8% & 100% Fibo Extension Areas, these are used for taking profit.
On the Fibonacci extension example illustrated 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 Fibonacci extension levels are displayed as horizontal lines above Fibonacci Extension technical indicator, showing profit-taking areas. In the xauusd trading examples illustrated and described below if you had used the 100% Fibo extension you would have made nice profit from using this setup.
Drawing Fibonacci Extension Zones on an Upwards Gold 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 xauusd price retraced again after getting to the 100.0 % Fibonacci Extension level.
Drawing Fib Extension Levels on a Downwards XAUUSD 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 the direction of the trend. In the Fibonacci extension example illustrated and 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 Fibonacci Extension is drawn below. This time you would also have used Fibonacci extension level 100%, just where the price reached as shown on the xauusd example illustrated & described below. That would have been a nice take profit area.
Drawing Fibonacci Extension Levels on a Downwards Gold Trend
From the Fibonacci extension example above, after drawing this Fibonacci extension tool there are 2 levels that are used to show the profit-taking areas, these two Fibonacci extension levels are drawn as horizontal lines across the xauusd price chart.
