XAUUSD Fib Expansion Levels
We have looked at Fibonacci retracement in the previous course, drawn between two points. But to draw Fib expansion we use three chart points.
To draw these levels we wait until the retracement is complete and price starts to move in original direction of the Gold trend. Where the retracement reaches is used as chart point 3.
The example depicted and explained below portrays the Three Points where the Fibonacci extension is drawn, marked as 1, 2 and 3. 1 is where the trend started, 2 is where the market trend pulled back & retraced and 3 is where the retracement reached as displayed on the trading example depicted and described below.
Please take note where these levels are drawn - they are drawn above the technical indicator, these are the points where the trader will place the take-profits.
Drawing Extension Levels on an Upward Trend
We use Fibo expansion levels to estimate where the movement will reach. There are two important extension levels: 61.8 % & 100%, these are used for taking profit.
On examples, below you can see that the Fibonacci expansion is drawn along the direction of the trend, since the trend is upwards - the extension is drawn upwards.
These levels are displayed as horizontal lines above the indicator, showing profit taking areas. In the example illustrated & explained below if you had used 100% extension you would have made nice profit from the trade.
NB: This is the same trade from the previous example where we used Fibonacci retracement to buy at around retracement level 38.2 %. At the same time we have used Fib extension 100% to set take profit order. Now find a Gold chart & practice these strategies.
From the above examples, the upward trend continued and both 61.8 % and 100.0 % levels were all hit after which xauusd price retraced again after getting to the 100.0% extension.
Drawing Extension Levels on a Down-wards Trend
Since we use this tool to estimate take profits, how do we draw it in a downward trend?
We draw it from point 1 to 2 to 3 as shown below. Remember we always draw this tool in the direction of the trend. In the example illustrated & described below, can you figure out what direction we've drawn it? That's right - downward.
Try & see the difference between how we have drawn it above and how it's drawn below. This time you'd also have used extension level 100%, see just where the price reached. That would have been a nice take profit area.
From the trading example above, after plotting this tool there are two levels which are used to show the profit taking areas, these two are drawn as horizontal lines across the price chart.
Get More Topics & Tutorials:
- How to Trade W XAU/USD Pattern Technical Analysis
- Placing Gann Lines on Gold Charts in MT4 Platform
- Drawing Fibonacci Expansion Levels on Upwards & Downwards Gold Trend
- No Nonsense Learn Gold Blog
- How to Use Gold Trend-line Analysis in Gold
