How to Draw Fibonacci Extension Levels

How Do I Trade Indices and Draw Fibonacci Extension Levels?

Traders use Fibonacci extension levels to estimate where the trend movement will reach. There are two commonly used Fibonacci extension levels - 61.8% Fibonacci Extension Level and 100% Fibonacci Extension Levels, these fibonacci extension levels are used for setting indices take profit levels.

To draw Fibonacci Extension levels on the stock indices chart we wait until the stock indices price retracement is complete and the stock indices price starts to move in original direction of the stock indices trend. Where the stock indices price retracement reaches is used as chart point 3. Fibonacci Extension Indicator is plotted using three chart points as illustrated on the Fibonacci extension indices example explained below of how to plot the Fibonacci Extension Technical Indicator.

The Fibonacci extension example explained and illustrated below shows the 3 Stock Indices Chart Points where the Fibonacci extension indicator is drawn, marked as Stock Indices Chart point 1, Stock Indices Chart point 2 & Stock Indices Chart point 3.

Stock Indices Chart point 1 is where the indices trend started, Stock Indices Chart point 2 is where the indices trend pulled back & retraced and Stock Indices Chart point 3 is where the indices retracement reached as displayed on the Fibonacci Extension Indicator examples explained & illustrated below.

How to Draw Fibo Extension Levels?

Please note where these Fibo Extension areas are drawn - Fibonacci Extension zones are plotted above the Fibo indices indicator, these are the stock chart points where a trader will place the indices take profit orders using these Fib Extension Levels - 61.8% and 100.0% Fibonacci Extension Areas.

Drawing Fib Extension Zones on an Upward Indices Trend

We use Fibo expansion levels to estimate where the trend movement will reach. There are two commonly used Fibonacci extension levels: 61.8% Stock Indices Trading Fibo Extension Level and 100% Fibonacci Extension Level, these Fib Extension Levels are used for taking profit.

On the Fibonacci extension indicator example explained and illustrated below you can see that the Fibonacci extension technical indicator is plotted along the direction of the trend, since the trend is upwards - the Fibonacci extension levels indicator is drawn upwards.

These Fibo extension levels are displayed as horizontal lines above Fibonacci Extension indicator, showing indices profit taking areas. In the indices example explained below if you had used the 100.00% Fibonacci extension level you would have made nice profit from the trade set-up.

Drawing Fibonacci Extension Areas Indicator on an Upward Indices Trend

From the above Fibonacci extension indicator example, upward trend continued and both 61.8% & 100.0% Fibonacci extension levels were all hit after which stock indices price retraced again after getting to the 100.00% Fibonacci Extension level.

Drawing Fib Extension Levels on a Downwards Indices Trend

Since we use the Fibonacci extension indicator tool to estimate indices take profit levels, how do we draw Fibonacci Extension in a downward Indices trend?

We draw the Fibonacci extension indicator tool from chart point 1 to chart point 2 to chart point 3 as illustrated on the Fibonacci extension indices example explained below. Remember we always draw this Fibonacci extension tool in direction of the stock indices trend. In the Fibonacci extension example explained and illustrated below, can you figure what's the direction which we have plotted it? That's right - downward direction.

Try & identify the difference between how we have drawn Fibonacci extension levels indicator above and how Fibonacci Extension levels indicator is drawn below. This time you would also have used Fibonacci extension level 100.0%, just where the stock indices price reached as shown on the Fibonacci extension levels indices example explained and illustrated below. This would have been a good indices take profit area.

Drawing Fibonacci Extension Areas Indicator on a Downward Indices Trend

From the Fibonacci extension levels indicator example above, after plotting this Fibonacci extension levels indices tool there are 2 levels that are used to show the indices profit taking areas - these two Fibonacci extension levels are drawn as horizontal lines across the stock indices price chart marked as 61.80% Stock Indices Trading Fibo Extension Level and 100% Fibonacci Extension Level.

How to Draw Fibo Extension Zones