Indices Fib Expansion Levels

We have looked at Fibonacci retracement in the previous course, drawn between two points. But to draw Fibonacci expansion we use Three chart points.

To draw these levels we wait until the retracement is complete and trading price starts to move in original direction of the Indices trend. Where the retracement reaches is used as point 3.

The example explained and illustrated below shows the 3 Points where the Fibonacci extension is drawn, marked as 1, 2 & 3. 1 is where the market trend started, 2 is where the trend pulled back and retraced & 3 is where the retracement reached as portrayed on the trading examples explained below.

How Do I Draw Fibonacci Expansion on Indices Charts? - Fibo Extension Levels Chart Levels

Please note where these levels are drawn - they're drawn above the trading indicator, these are the points where the trader will place the take profit orders.

Drawing Extension Levels on an Upwards Trend

We use Fibonacci expansion levels to estimate where movement will reach. There are two crucial extension levels: 61.8 % and 100%, these are used for taking profit.

On examples, below you can see that the Fibonacci extension is drawn along the direction of the trend, since the market trend is upwards - the expansion is drawn upwards.

These areas are illustrated as horizontal lines above the indicator, showing the profit taking areas. In the trading example explained and illustrated below if you had used of 100 % extension you would have made nice profit from the trade.

NB: This is the same trade from the previous example where we used Fibonacci retracement to buy at around retracement level 38.2 %. At the same time we have used Fibonacci extension 100% to set take profit. Now find a Indices chart & practice these strategies.

Fibo Extension Levels Drawn on Upward Indices Trend - Fibo Expansion Chart Levels

From the above examples, the upward trend continued and both 61.8 % and 100.0 % levels were all hit after which price retraced again after getting to the 100.00% extension.

Drawing Extension Areas on a Downwards Trend

Since we use this tool to estimate tp orders, how do we draw it in a downwards trend?

We draw it from point 1 to 2 to 3 as illustrated below. Remember we always draw this tool in direction of the market trend. In the trading example explained and illustrated below, can you figure out what direction we've drawn it? That is right - downwards.

Try and see the difference between how we've drawn it above & how it is drawn below. This time you'd also have used extension level 100%, see just where the trading price reached. That would have been a nice take profit order area.

Fibo Expansion drawn on Downward Indices trend - Fib Expansions Chart Levels

From the trading example above, after drawing this tool there are two levels that are used to show the profit taking areas, these two are drawn as horizontal lines across the trading price chart.

More Courses & Lessons:

Trade Stock Indices

Indices Fib Expansion Levels

Drawing Extension Levels on an Upwards Trend

Drawing Extension Areas on a Downwards Trend