XAUUSD Fibonacci Expansion Levels
We have looked at Fibonacci retracement in the previous course, drawn between 2 points. But to draw Fibonacci expansion we use three chart points.
To draw these levels we wait until the price retracement is complete and price begins to move in original and initial direction of the XAUUSD trend. Where the price retracement reaches is used as chart point 3.
The example depicted & described below portrays the Three Points where the Fib extension is drawn, marked as 1, 2 & 3. 1 is where the market trend started, 2 is where the trend pulled back & retraced and 3 is where the price retracement reached as displayed on the trading example depicted & described below.
Please take note where these levels are drawn - they're drawn above the technical indicator, these are the points where the Gold trader will set the take-profits.
Drawing Extension Levels on an Upward Trend
We use Fibonacci expansion levels to estimate where the movement will reach and get to. 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 market trend is upwards - the extension is drawn upward.
These levels are displayed as horizontal lines above the technical 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.
Note: 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 Fibonacci extension 100% to set take profit order. Now find a Gold chart & practice these strategies.
From the above illustrations, the upwards trend continued and both 61.8 % & 100.0 % levels were all hit after which xauusd gold 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 downwards trend?
We draw it from point 1 to 2 to 3 like shown below. Remember we always draw this tool in the direction of the market trend. In the example shown & described below, can you figure out & determine what direction we've drawn it? That's right - downwards.
Try & see the difference between how we have drawn it above and how it's drawn below. This time you would 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 drawing this tool there are two levels which are used to show the profit taking areas, these 2 are drawn as horizontal lines across price chart.
Get More Topics and Tutorials:
- How to Trade W XAU/USD Pattern Technical Analysis
- Placing Gann Lines on Gold Charts in MT4 Software
- Drawing Fibonacci Expansion Levels on Upwards & Downward Trend
- No Nonsense Learn Gold Blog
- How to Use Gold Trend line Analysis in Gold
