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