Fibonacci Extension Strategy using Fibonacci Extension Levels

Trading with Fibonacci Extension Indicator

Fibonacci extension levels indicator is drawn using 3 chart points.

To draw Fibonacci Extension zones we wait until the stock indices trading price retracement is complete & stock indices trading price starts to move in original direction of the Indices trend. Where the retracement reaches is used as chart point 3.

The Fibonacci extension example explained and illustrated below shows the 3 Chart Points where the Fibonacci extension indicator is drawn, marked as Chart point 1, 2 and 3. Chart point 1 is where the indices trend started, Chart point 2 is where the indices trend pulled back and retraced and Chart point 3 is where the stock indices retracement reached as displayed on the Fibonacci Extension Indicator examples explained & illustrated below.

Fibonacci Extension Strategy using Fibonacci Extension Zones

Please note where these Fibo Extension areas are drawn - Fibonacci Extension zones are plotted above the Fibo Indicator, these are the points where the trader will place the takeprofit orders using these Fibonacci Extension Levels - 61.8% and 100% Fibonacci Extension Areas.

Drawing Fib Extension Zones on an Upward Indices Trend

We use Fibo extension levels to estimate where the trend movement will reach. There are 2 important Fibo extension levels: 61.8% and 100% Fibonacci Extension Levels, these are used for taking profit.

On the Fib extension examples illustrated below you can see that the Fib extension technical indicator is plotted along the direction of the trend, since the trend is upward - the Fibo extension is also drawn upward.

These Fibo extension levels are displayed as horizontal lines above Fibonacci Extension technical indicator, showing profit taking areas. In the stock indices trading example explained and illustrated below if you had used of 100% Fibonacci extension you would have made nice profit from the trade set-up.

Drawing Fibonacci Extension Zones on an Upwards Indices Trend - Fib Extension Strategies in Indices Trading

From the above Fibonacci extension examples, the upward trend continued and both 61.8% and 100.00% Fibonacci extension levels were all hit after which stock indices trading price retraced again after getting to the 100.0 % Fibonacci Extension level.

Drawing Fib Extension Levels on a Downwards Indices Trend

Since we use this Fibo extension indicator to estimate take profit levels, how do we draw it in a downwards trend?

We draw the Fib extension indicator from chart point 1 to 2 to 3 as displayed below. Remember we always draw this Fib extension tool in direction of the trend. In the Fibonacci extension examples explained below, can you figureout what direction we have drawn it? That's right - downwards direction.

Try & identify the difference between how we have drawn the Fibo extension above and how Fibonacci Extension is drawn below. This time you would also have used Fibonacci extension level 100%, just where the stock indices trading price reached as displayed on the stock indices trading example explained below. That would have been a nice take profit area.

Fibonacci Extension Strategies in Indices Trading

From the Fibonacci extension example above, after plotting 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 stock indices trading price chart.