What is Difference between XAUUSD Fibonacci Retracement & XAUUSD Fibonacci Extension?

How to use Fibonacci Retracement & Extension and the Difference between Fibonacci Retracement & Extension

XAUUSD Trading Fib Retracement Areas

Fibonacci retracement is plotted between 2 chart points but Fib extension is plotted using 3 chart points.

Fibonacci Retracement Level example shown below where the xauusd trend is heading down between Chart point 1 & Chart point 2, then after Chart point 2 the gold trading price retraces then it continues moving upwards in the original upward trend. Note that this Fibonacci Retracement Levels indicator is drawn from Chart point 1 to Chart point 2 in the direction of the trend.

Fibonacci Retracement Levels - How to Draw Fibo Retracement Levels

Fibonacci Extension Levels

Fibonacci retracement is plotted between 2 chart points but Fib extension is plotted using 3 chart points.

To draw these Fibonacci Extension levels 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 retracement reaches is used as chart point Three for Fibo extension.

The Fibonacci Extension examples shown below shows the Three chart Points where the Fibonacci Extension indicator is drawn, marked as chart point 1, 2 & 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 retracement reached as illustrated and shown on the Fibonacci Extension example shown below.

Fibonacci Extension Levels - How to Draw Fibo Extension Zones

Please note where these Fib Extension levels are plotted - Fibo Extension zones are drawn above the Fibonacci Extension indicator, these are the points where a trader will set the takeprofit orders.