Indices Fibo Expansion Levels

We have looked at Fib retracement in the previous course, drawn between 2 points. But to draw Fib expansion we use 3 chart points.

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

The illustration explained & illustrated below shows the 3 Points where the Fib extension is drawn, marked as 1, 2 and 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 illustrations expounded 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 and levels where the trader will place the take profit orders.

Drawing Extension Levels on an Upwards Trend

We use Fib expansion levels to estimate where movement will get to. There are 2 crucial extension levels: 61.8 % and 100%, these are used for taking profit.

On examples, below you as a trader can see that the Fib 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 booking areas. In the trading example illustration explained and shown 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 Fib 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.

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

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

Drawing Extension Areas on a Downward Trend

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

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

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 good take profit order area.

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

From the trading example illustration shown above, after drawing this tool there are 2 levels that are used to display the profit booking areas, these 2 are drawn as horizontal lines across the trading price chart.

More Courses and Lessons:

Trade Stock Indices

Indices Fibo Expansion Levels

Drawing Extension Levels on an Upwards Trend

Drawing Extension Areas on a Downward Trend