How Do I Trade with Fibonacci Extension?

Fibonacci Extension Strategies in XAUUSD Trading

Fibonacci extension levels indicator is drawn using Three chart points.

To draw Fib Extension areas we wait until the price retracement is complete and price starts to move in original direction of the trend. Where the retracement reaches is used as chart point 3.

The Fibonacci extension example depicted and explained below portrays the Three Chart Points where the Fibonacci extension technical indicator is drawn, marked as Chart point 1, 2 and 3. Chart point 1 is where the trend started, Chart point 2 is where the trend pulled back and retraced and Chart point 3 is where the retracement reached as displayed on the Fibonacci Extension Indicator example depicted and described below.

How Do You Trade with Fibonacci Extension?

Please note where these Fibo Extension levels are drawn - Fibo Extension zones are plotted above the Fibo Indicator, these are the points where the trader will place the take-profit orders using these Fibo Extension Levels - 61.8% & 100% Fibonacci Extension Levels.

Drawing Fib Extension Zones on an Upwards Trend

We use Fibonacci extension levels to estimate where the market trend movement will reach. There are Two important Fibonacci extension levels: 61.8% & 100% Fibo Extension Areas, these are used for taking profit.

On the Fibonacci extension example depicted and explained below you can see that the Fibonacci extension technical indicator is drawn along the direction of the trend, since the trend is upwards - the Fibonacci extension is also drawn upwards.

These Fibonacci extension levels are displayed as horizontal lines above Fibonacci Extension technical indicator, showing profit taking areas. In the examples illustrated and described below if you had used the 100% Fibo extension you would have made nice profit from using this setup.

Drawing Fib Extension Zones on an Upwards Trend - Fib Extension Strategies in Gold Trading

From the above Fibonacci extension examples, the upward trend continued & both 61.80% and 100.00% Fibonacci extension levels were all hit after which price retraced again after getting to the 100.0 percent Fibonacci Extension level.

Drawing Fib Extension Levels on a Downwards Trend

Since we use this Fibo extension indicator tool to estimate take profit levels, how do we draw it in a downward trend?

We draw the Fibonacci extension indicator from chart point 1 to 2 to Three as shown below. Remember we always draw this Fibonacci extension tool in the direction of the trend. In the Fibonacci extension example depicted and explained below, can you figure what direction we have drawn it? That is right - downward direction.

Try & spot difference between how we have drawn the Fibonacci extension above & how Fib Extension is drawn below. This time you'd also have used Fibonacci extension area 100 percent, just where price reached as shown on the example illustrated & described below. That would have been a nice take profit area.

Drawing Fib Extension Levels on a Downwards Trend

From the Fibonacci extension example above, after drawing this Fibonacci extension tool there are two levels that are used to show the profit taking areas, these two Fib extension levels are drawn as horizontal lines across the price chart.