How to Draw Fibonacci Extension
How Do I Use Fibonacci Extension Levels on XAUUSD Chart?
We use Fibonacci Extension Levels to estimate where the gold trend movement will reach. There are 2 important Fibonacci Extension levels; 61.8% and 100% Fibonacci Extension Levels, these are used for taking profit.
To draw Fibonacci Extension levels on the gold chart we wait until the xauusd trading price retracement is complete and the xauusd trading price starts to move in the original direction of the Gold trend. Where the xauusd trading price retracement reaches is used as chart point 3. Fibonacci Extension Indicator is drawn using three chart points as shown on the xauusd trading example illustrated and explained below of how to draw the Fibonacci Extension Indicator Tool.
The Fibonacci Extension example illustrated and explained below shows the 3 Chart Points where the Fibonacci Extension indicator is drawn, marked as Chart point 1, Chart point 2 and Chart point 3.
Chart point 1 is where the gold trend started, Chart point 2 is where the gold trend pulled back and retraced and Chart point 3 is where the gold retracement reached as shown on the Fibonacci Extension Indicator Tool example illustrated and explained below.
How to Trade with Fibonacci Extension? - How to Draw Fibonacci Extension Levels on Gold Charts
Please note where these Fibonacci Extension levels are drawn - Fibonacci Extension levels are drawn above the Fibonacci indicator, these are the chart points where a gold trader will set the take profit orders using these Fibonacci Extension Levels - 61.8% and 100.0% Fibonacci Extension Levels.
Drawing Fibonacci Extension Levels on an Upward Gold Trend
We use Fibonacci Extension Levels to estimate where the gold trend movement will reach. There are 2 important Fibonacci Extension levels; 61.8% XAUUSD Trading Fib Extension Level and 100% Fibonacci Extension Level, these Fibonacci Extension Levels are used for taking profit.
On the Fibonacci Extension indicator example illustrated and explained below you can see that the Fibonacci Extension indicator tool is drawn along the direction of the gold trend, since the gold trend is upwards - the Fibonacci Extension indicator is drawn upwards.
These Fibonacci Extension levels are displayed as horizontal lines above the Fibonacci Extension indicator, showing profit taking areas. In the xauusd trading example illustrated and explained below if you had used of 100.0% Fibonacci Extension level you would have made nice profit from the trade setup.
Drawing Fibonacci Extension Indicator on an Upward Gold Trend - Fibonacci Extension Trading Tool
From the above Fibonacci Extension indicator example, the upward gold trend continued and both 61.8% and 100.0% Fibonacci Extension levels were all hit after which xauusd trading price retraced again after getting to the 100.0 % Fibonacci Extension level.
Drawing Fibonacci Extension Levels on a Downward Gold Trend
Since we use the Fibonacci Extension indicator tool to estimate take profit levels, how do we draw Fibonacci Extension in a downward Gold trend?
We draw the Fibonacci Extension indicator tool from chart point 1 to chart point 2 to chart point 3 as shown on the xauusd trading example illustrated and explained below. Remember we always draw this Fibonacci Extension tool in the direction of the xauusd trend. In the Fibonacci Extension example illustrated and explained below, can you figure what direction we have drawn it? That is right - downward direction.
Try and spot the difference between how we have drawn Fibonacci Extension indicator above and how Fibonacci Extension indicator is drawn below. This time you would also have used Fibonacci Extension level 100.0%, just where the xauusd trading price reached as shown on the xauusd trading example illustrated and explained below. That would have been a good take profit area.
Drawing Fibonacci Extension Indicator on a Downward Gold Trend - Fibonacci Extension Trading Tool
From the Fibonacci Extension indicator example above, after drawing this Fibonacci Extension tool there are two levels that are used to show the profit taking areas, these two Fibonacci Extension levels are drawn as horizontal lines across the xauusd trading price chart marked as 61.8% XAUUSD Trading Fib Extension Level and 100% Fibonacci Extension Level.
