Drawing Fibonacci Extension Levels on Upwards & Downward Trend
We have looked at Fib retracement in the previous learn Gold trading lesson, drawn between two chart points. But to plot Fibonacci expansion levels we use 3 chart points.
To draw these levels we wait until the price retracement is complete & the XAU/USD metal starts and begins to move in the original direction of the Gold price trend. Where the pull-back reaches is used as chart point 3.
The example presented below shows the 3 Points where the Fibonacci expansion levels technical indicator is drawn - marked & labeled as 1, 2 and 3. Point 1 is where the market trend started, Point 2 is where the market trend started to be pulled back and retraced and Point 3 is where the price retracement reached like is shown on the example below.
Fibonacci Expansion Levels
Please note where these Fibonacci expansion levels are plotted - they are drawn above the technical indicator, these are the areas where trader will set take-profit orders.
Drawing Fibonacci Extension Levels on an Upward Gold Price Trend
We use Fibonacci extension levels to estimate where the price movement will reach. There are 2 important extension levels: 61.8 % Fibonacci expansion level and 100 % Fib expansion level, these technical levels are used for taking profit.
On the example below you can see that the Fibonacci extension is drawn along the direction of the market trend, since the market trend is upward - the Fibonacci extension is drawn upward.
These Fibonacci extension levels are shown as horizontal lines above the indicator, showing profit taking areas. In the example displayed below if you had used of 100 percentage extension you'd have made nice profit from buy trade.
Note: This is the same trade from the previous example where we used Fibonacci retracement to buy at around retracement level 38.2 %Fib retracement. At the same time we have used Fibonacci extension level 100 % to set takeprofit. Now find a Gold price chart and practice these trading strategies.
Fibonacci Expansion Levels Drawn on an Upward XAUUSD Price Trend
From the examples revealed above, the upward trend continued and both Fibonacci Expansion 61.8 % & 100.0 percent levels were all hit after which the price retraced again after hitting the 100.0 percentage Fib extension level.
Drawing Fibonacci Expansion Levels on a Downward Gold Price Trend
Since we use this tool to estimate tp orders, how do we draw it in a downwards XAUUSD price trend?
We plot Fibonacci extension levels technical indicator from point 1 to 2 to three just as shown below. Remember we always draw this tool in the market direction of the market trend. In the example presented below, can you figure what direction we've drawn it? That is right - downwards because the market trend is downwards.Try and see the difference between how we have drawn it above and how it is drawn below. This time you'd also have used Fibonacci extension level 100%, see just where the market price reached. That would have been a good tp order area.
Fibonacci Expansion Levels Drawn on a Downward XAUUSD Market Trend
From the example revealed above, after drawing this Fib extension indicator there are 2 levels which are used to show the taking profit areas, these 2 levels are plotted as horizontal lines across the price chart (these levels are 61.8 % Fib expansion level & 100 % Fib extension level like is shown above).
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