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 determine levels for charting, wait until a price retracement ends and begins moving back in the original XAU/USD trend direction. The retracement point can serve as chart level 3.
The example below shows three points for the Fib extension. Point 1 marks the trend start. Point 2 is the pullback spot. Point 3 is where the price stopped retracing. See it on the chart example.
Remember where these lines are drawn: they are above the technical indicator, and they show where the Gold trader will set the points to take their profits.
Drawing Extension Levels on an Upward Trend
We use Fibonacci expansion levels to estimate potential price movement targets. Key extension levels, such as 61.8% and 100%, are vital for identifying profit-taking points.
In the examples below, draw Fibonacci expansion with the trend. For an uptrend, extend it upward.
These levels appear as lines above the indicator. They mark spots to take profits. In the example below, a 100% extension would have brought solid gains.
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.
Based on the illustrations above, an upward trend persisted, hitting both the 61.8% and 100.0% levels before the xauusd gold price retraced after reaching 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 construct this line by drawing sequentially from point 1 through point 2 to point 3, as depicted below. Remember that this drawing tool must always align with the prevailing direction of the market trend. In the example detailed underneath, can you deduce the direction in which we've plotted it? Correct - 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.
In the trading example above, after you draw the tool, you'll see two horizontal lines across the price chart. These mark the profit-taking areas.
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
