Fibonacci Extension Strategy using Fib Extension Levels
Trading with Fibonacci Extension Indicator
Fibonacci extension levels indicator is drawn using 3 chart points.
To draw Fib Extension levels we wait until the trading price retracement is complete & price begins heading in original direction of the trend. Where the pull back gets-to is used as chart point 3.
The Fib 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 trend started, Chart point 2 is where trend pulled back and retraced & Chart point 3 is where the retracement reached as illustrated on the Fib Extension Indicator examples explained and shown below.
Fibonacci Extension Strategy using Fibonacci Extension Zones
Please note where these Fibonacci Extension areas are drawn - Fib Extension zones are plotted above the Fibo Indicator, these are the points where the trader will place the takeprofit orders using these Fibonacci Extensions - 61.8% and 100% Fibonacci Extension Areas.
Drawing Fibo Extension Zones on an Upward Indices Trend
We use Fibo extension levels to estimate where the trend movement will reach. There are two important Fibo extension levels: 61.8% and 100% Fib Extension Levels, these are used for profit taking.
On the Fib extension examples illustrated below you can see that the Fib extension indicator is plotted along the direction of the trend, since the trend is upward - the Fibo extension is also drawn upward.
These Fibonacci extension levels are displayed as horizontal lines above Fibonacci Extension indicator, showing profit booking zones. In the 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 Trend - Fib Extension Strategies in Indices Trading
From the above Fib extension examples, the upward trend continued and both 61.8% and 100.00% Fibonacci extension levels were all hit after which price retraced again after getting to the 100.0 percent Fibonacci Extension zone.
Drawing Fib Extension Levels on a Downwards Trend
Since we use this Fibo extension indicator to estimate take profit zones, how do we draw it in a downward 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 and identify the difference between how we have drawn the Fibo extension above and how Fib Extension is drawn below. This time you would also have used Fib extension zone 100%, just where the trading price reached as displayed on the trading example explained below. That would have been a good take profit zone.
Fibonacci Extension Strategies in Indices Trading
From the Fibonacci extension example above, after plotting this Fibonacci extension tool there are two levels that are used to show the profit booking zones, these two Fibonacci extensions are drawn as horizontal lines across the price chart.
