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