How to Draw Fibonacci Extension

How Do I Use Fibonacci Extensions on Chart?

We use Fibo Extension Levels to estimate where the trend movement will reach. There are two important Fibo Extension zones: 61.80% and 100% Fibo Extension Areas, these are used for taking profit.

To draw Fibonacci Extension zones on the chart we wait until the price retracement is complete and the price starts to move in original direction of the trend. Where the price retracement reaches is used as chart point 3. Fibo Extension Indicator is plotted using 3 chart points as illustrated on the examples illustrated and described below of how to plot the Fib Extension Technical IndicatorTool.

The Fibonacci Extension example explained below shows the 3 Chart Points where the Fibonacci Extension technical indicator is plotted, marked as Chart point 1, Chart point two and Chart point 3.

Chart point 1 is where the trend started, Chart point 2 is where the trend pulled back & retraced and Chart point 3 is where the retracement reached as portrayed on the Fibonacci Extension Indicator Tool examples illustrated and described below.

How to Trade with Fibonacci Extension? - How to Draw Fibonacci Extensions on Charts

Please note where these Fib Extension areas are drawn - Fibo Extension zones are drawn above the Fibonacci technical indicator, these are chart points where a trader will set take profit orders using these Fibonacci Extensions - 61.8% & 100.0% Fibo Extension Areas.

Drawing Fibo Extension Zones on an Upwards Trend

We use Fibo Extension Levels to estimate where the trend movement will reach. There are two important Fib Extension levels: 61.80% Fibo Extension Level & 100 Percent Fibo Extension Level, these Fib Extension Areas are used for taking profit.

On the Fibonacci Extension indicator example depicted and explained below you can see that the Fibonacci Extension 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 shown as horizontal lines above the Fib Extension technical indicator, showing the profit taking areas. In the examples illustrated & described below if you had used the 100.00% Fibo Extension level you would have made a good profit from this setup.

Drawing Fibonacci Extension Indicator in an Up-ward Trend - Fibo Extension Tool

From the above Fibonacci Extension indicator example, the upwards trend continued and both 61.80% and 100.00% Fibo Extension levels were all hit after which price retraced again after getting to the 100.0% Fibo Extension zone.

Drawing Fibonacci Extensions on a Downwards Trend

Since we use the Fibonacci Extension indicator tool to estimate take profit levels, how do we draw Fibonacci Extension in a downwards trend?

We draw the Fibo Extension indicator tool from chart point 1 to chart point 2 to chart point 3 as displayed on the examples illustrated and described below. Remember we always draw this Fibo Extension tool in direction of the trend. In the Fibonacci Extension example depicted and explained below, can you figure what direction we have drawn it? That's right - downwards direction.

Try and identify the difference between how we have drawn Fibo Extension indicator above and how Fibo Extension indicator is drawn below. This time you'd also have used Fibonacci Extension zone 100.00%, just where price reached as shown on the examples illustrated and described below. That would have been a good take profit area.

Drawing Fibonacci Extension Indicator in a Down-ward Trend - Fibo Extension Tool

From the Fibonacci Extension indicator example above, after plotting this Fibo Extension tool there are two levels that are used to show the profit taking areas, these 2 Fibo Extension areas are drawn as horizontal lines across the price chart marked as 61.80% Fibo Extension Level and 100% Fibo Extension Level.