How to Trade with Fibonacci Extension
Fibonacci Extension Strategies in XAUUSD
Fibonacci extension levels indicator is drawn using Three chart points.
To draw Fibo Extension zones we wait until the gold price retracement is complete & the price starts to move in original direction of the XAUUSD trend. Where the retracement reaches is used as chart point 3.
The Fibo extension example illustrated & shown below shows 3 Chart Points where the Fibonacci extension indicator is drawn, marked as Chart point 1, 2 and 3. Chart point 1 is where the xauusd trend started, Chart point 2 is where the xauusd trend pulled back and retraced & Chart point 3 is where the xauusd retracement reached as shown on the Fibonacci Extension Indicator example shown below.
XAUUSD Trade with Fibonacci Extension?
Please note where these Fibo Extension levels are plotted - Fibonacci Extension zones are plotted above the Fibo Indicator, these are points where the trader will place the take-profit orders using these Fibonacci Extension Levels - 61.80% and 100% Fibo Extension Levels.
Drawing Fibo Extension Zones on an Upwards Gold Trend
We use Fibonacci extension levels to estimate where the market trend movement will get to. There are 2 important Fibonacci extension levels: 61.8% and 100% Fibonacci Extension Levels, these are used for taking profit.
On the Fibonacci extension example shown below you can see that the Fibonacci extension technical indicator is drawn along the direction of the trend, since the trend is upward - the Fibonacci extension is also drawn upwards.
These Fibo extension levels are displayed as horizontal lines above Fibo Extension technical indicator, showing profit-taking areas. In the xauusd example shown below if you had used of 100% Fibonacci extension you would have made nice profit from the trade setup.
Drawing Fibo Extension Zones on an Upwards XAUUSD Trend - Fibonacci Extension Strategies in XAUUSD
From the above Fibonacci extension examples, the upward trend continued and both 61.8% & 100.0% Fibonacci extension levels were all hit after which gold price retraced again after getting to the 100.0 % Fibonacci Extension level.
Drawing Fib Extension Areas on a Downward Gold Trend
Since we use this Fibo extension indicator 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 3 as shown below. Remember we always plot this Fibonacci extension tool in the direction of the trend. In the Fibonacci extension example shown below, can you figure what direction we have drawn it? That is right - downwards direction.
Try & spot the difference between how we have drawn the Fibonacci extension above and how Fibonacci Extension is drawn below. This time you would also have used Fibonacci extension level 100%, just where the price reached as illustrated on the xauusd example shown below. That would have been a nice take profit area.
Drawing Fibo Extension Areas on a Downwards XAUUSD Trend - Fibonacci Extension Strategies in XAUUSD
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 Fibonacci extension levels are drawn as horizontal lines across the gold price chart.
