How to Draw Fibonacci Extension
How Do You Use Fibonacci Extension Levels on XAUUSD Chart?
We use Fibonacci Extension Areas to estimate where the trend movement will reach. There are 2 important Fib Extension areas: 61.8% and 100% Fibonacci Extension Areas, these are used for taking profit.
To draw Fibonacci Extension levels on the gold chart we wait until the gold price retracement is complete and the gold price starts to move in original direction of the XAUUSD trend. Where the gold price retracement reaches is used as chart point 3. Fibonacci Extension Indicator is drawn using 3 chart points as shown on the xauusd examples displayed below of how to draw the Fibo Extension Technical Indicator Tool.
The Fibo Extension example displayed below shows the 3 Chart Points where the Fibonacci Extension technical indicator is plotted, marked as Chart point 1, Chart point 2 & Chart point 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 displayed on the Fibonacci Extension Technical Indicator Tool example shown below.
How to Trade with Fibonacci Extension? - How to Draw Fibonacci Extension Levels on XAUUSD Charts
Please note where these Fibonacci Extension levels are plotted - Fibonacci Extension zones are drawn above the Fibonacci technical indicator, these are the chart points where a trader will set the take-profit orders using these Fib Extension Levels - 61.8% & 100.0% Fibo Extension Levels.
Drawing Fib Extension Zones on an Upward XAUUSD Trend
We use Fibonacci Extension Areas to estimate where the trend movement will reach. There are 2 important Fibo Extension areas: 61.8%Fibonacci Extension Level and 100% Fib Extension Level, these Fib Extension Areas are used for taking profit.
On the Fibonacci Extension indicator example illustrated & 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 technical indicator is plotted upwards.
These Fib Extension levels are shown as horizontal lines above the Fib Extension technical indicator, showing the profit-taking areas. In the xauusd examples shown below if you had used of 100.0% Fibonacci Extension level you would have made a nice profit from using this setup.
Drawing Fibonacci Extension Indicator on an Upward XAUUSD Trend - Fib Extension Trading Tool
From the above Fibonacci Extension indicator examples, the upwards trend continued & both 61.8% & 100.0% Fibo Extension levels were all hit after which gold price retraced again after getting to the 100.00% Fibonacci Extension level.
Drawing Fib Extension Areas on a Downward XAUUSD Trend
Since we use the Fibonacci Extension indicator tool to estimate take profit levels, how do we draw Fibonacci Extension in a downward XAUUSD trend?
We draw the Fibonacci Extension indicator from chart point 1 to chart point 2 to chart point 3 as displayed on the xauusd examples 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 plotted it? That's right - downwards direction.
Try & spot difference between how we have drawn Fibo Extension indicator above & how Fibo Extension technical indicator is plotted below. This time you would also have used Fibo Extension level 100.0%, just where the price reached as shown on the xauusd example shown below. That would have been a good take profit area.
Drawing Fibonacci Extension Indicator on a Downward XAUUSD Trend - Fib Extension Trading Tool
From the Fibonacci Extension indicator example above, after drawing this Fibonacci Extension tool there are 2 levels which are used to show the profit-taking areas, these 2 Fibonacci Extension areas are plotted as horizontal lines across the gold trading price chart marked as 61.8%Fibonacci Extension Level and 100% Fib Extension Level.
