How to Draw Fibonacci Extension
How Do I Use Fibonacci Extension Levels on XAUUSD Chart?
We use Fibonacci Extension Levels to estimate where the trend movement will reach. There are 2 important Fibonacci Extension levels: 61.80% and 100% Fibonacci Extension Areas, these are used for taking profit.
To draw Fibonacci Extension levels on the gold chart we wait until the xauusd price retracement is complete & the xauusd price starts to move in original direction of the Gold trend. Where the xauusd trading price retracement reaches is used as chart point 3. Fibonacci Extension Indicator is plotted using 3 chart points as illustrated on the xauusd trading examples illustrated and described below of how to plot the Fib Extension Technical Indicator Tool.
The Fibonacci Extension example explained below shows the 3 Chart Points where the Fibonacci Extension technical indicator is drawn, marked as Chart point 1, Chart point 2 & Chart point 3.
Chart point 1 is where the gold trend started, Chart point 2 is where the gold trend pulled back and retraced & Chart point 3 is where the gold retracement reached as displayed on the Fibonacci Extension Technical Indicator Tool examples illustrated and described below.
How to Trade with Fibonacci Extension? - How to Draw Fibonacci Extension Levels on Gold Charts
Please note where these Fib Extension areas are drawn - Fibo Extension zones are drawn above the Fibonacci technical indicator, these are chart points where a trader will set take profit orders using these Fibonacci Extension Levels - 61.8% & 100.0% Fibo Extension Areas.
Drawing Fibo Extension Zones on an Upwards Gold Trend
We use Fibonacci Extension Levels to estimate where the trend movement will reach. There are 2 important Fib Extension levels: 61.80% XAUUSD Fibonacci Extension Level and 100% Fibonacci Extension Level, these Fib Extension Areas are used for taking profit.
On the Fibonacci Extension indicator example illustrated and explained below you can see that the Fibonacci Extension technical indicator tool is plotted along the direction of the trend, since the trend is upward - the Fibonacci Extension technical indicator is drawn upwards.
These Fibonacci Extension levels are shown as horizontal lines above the Fib Extension technical indicator, showing the profit taking areas. In the xauusd trading examples illustrated & described below if you had used the 100.00% Fibo Extension level you would have made a good profit from this setup.
Drawing Fibonacci Extension Indicator on an Upward Gold Trend - Fibonacci Extension Tool
From the above Fibonacci Extension indicator example, the upwards trend continued and both 61.80% and 100.00% Fibonacci Extension levels were all hit after which xauusd price retraced again after getting to the 100.00% Fibonacci Extension level.
Drawing Fibonacci Extension Levels on a Downwards 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 Fibo Extension indicator tool from chart point 1 to chart point 2 to chart point 3 as displayed on the xauusd trading examples illustrated and described below. Remember we always draw this Fibonacci Extension tool in direction of the trend. In the Fibonacci Extension example illustrated and explained below, can you figure what direction we have drawn it? That's right - downwards direction.
Try and identify the difference between how we have plotted Fibo Extension indicator above and how Fibo Extension technical indicator is drawn below. This time you would also have used Fibonacci Extension level 100.00%, just where the price reached as illustrated on the xauusd trading examples illustrated and described below. That would have been a good take profit area.
Drawing Fibonacci Extension Indicator on a Downward Gold Trend - Fibonacci Extension Tool
From the Fibonacci Extension indicator example above, after plotting this Fibonacci Extension tool there are 2 levels that are used to show the profit taking areas, these 2 Fibonacci Extension areas are drawn as horizontal lines across the xauusd trading price chart marked as 61.80% XAUUSD Fibo Extension Level and 100% Fibonacci Extension Level.
