Fibonacci Projection Strategies in Indices Trading
What is Fib Projection in Indices Trading?
Fibonacci projection is drawn using 3 chart points.
To draw Fib Projection levels 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 projection example explained and illustrated below shows the 3 Chart Points where the Fibonacci projection 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 illustrated on the Fib Projection Tool examples explained & illustrated below.
Indices Trade with Fibonacci Projection? Fibonacci Projection Strategy using Fibonacci Projection Levels
Please note where these Fib Projection areas are plotted - Fibonacci Projection zones are plotted above the Fibo Indicator, these are the points where the trader will place the takeprofit orders using these Fib Projection Levels - 61.8% and 100% Fibonacci Projection Areas.
Drawing Fibonacci Projection Zones on an Upwards Stock Indices Trend
We use Fibonacci projection levels to estimate where the trend movement will reach. There are 2 important Fib projection levels: 61.8% and 100% Fibo Projection Areas, these are used for taking profit.
On the Fib projection examples explained below you can see that the Fib projection technical indicator is plotted along the direction of the trend, since the trend is upward - the Fib projection is drawn upward.
These Fib projection levels are displayed as horizontal lines above the Fib Projection technical indicator, showing profit taking areas. In the stock indices trading example explained and illustrated below if you had used of 100% Fibonacci projection you would have made nice profit from the trade set-up.
Drawing Fibo Projection Zones on an Upwards Indices Trend - Fibonacci Projection Strategies in Indices Trading
From the above Fibonacci projection examples, the upward trend continued and both 61.8% and 100.00% Fibonacci projection levels were all hit after which stock indices trading price retraced again after getting to the 100.00% Fibonacci Projection level.
Drawing Fibonacci Projection Areas on a Downwards Stock Indices Trend
Since we use this Fib projection tool to estimate take profit levels, how do we draw it in a downwards Indices trend?
We draw the Fib projection indicator from chart point 1 to 2 to 3 as displayed below. Remember we always draw this Fibonacci projection tool in direction of the trend. In the Fib projection example explained below, can you determine what direction we have drawn it? That's right - downwards direction.
Try & identify the difference between how we have drawn Fibonacci projection above and how Fibonacci Projection is drawn below. This time you would also have used Fibonacci projection 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.
Drawing Fibo Projection Areas on a Downwards Indices Trend - Fibonacci Projection Strategies in Indices Trading
From the Fibonacci projection example above, after plotting this Fibonacci projection tool there are 2 levels that are used to show the profit taking areas, these two Fibonacci projection levels are drawn as horizontal lines across the stock indices trading price chart.
