How Do You Interpret Fibonacci Extension Levels in Indices Trading?
Stock Indices Trade Fibonacci Extension Levels in Indices Trading
Fibonacci extension levels indicator is drawn using 3 stock chart points.
To draw Fibo Extension levels we wait until the stock indices price retracement is complete and the stock indices price starts to move in original direction of the Indices trend. Where the stock indices price retracement reaches is used as stock chart point 3.
The Fibonacci extension stock indices trading example explained and illustrated below shows the 3 Indices Chart Points where the Fibonacci extension indices technical indicator is drawn, marked as Indices Chart point 1, 2 and 3. Indices Chart point 1 is where the indices trend started, Indices Chart point 2 is where the indices trend pulled back & retraced and Indices Chart point 3 is where the stock indices price retracement reached as shown on the Fibonacci Extension Indicator stock indices example illustrated below.
Fibo Extension Strategy using Fibonacci Extension Zones
Please note where these Fibo Extension areas are plotted - Fibonacci Extension zones are drawn above the Fibo Indices Technical Indicator, these are points where the trader will set the indices take-profit orders using these Fibonacci Extension Levels - 61.80% and 100% Fibo Extension Areas.
Drawing Fib Extension Zones on an Upward Indices Trend
We use Fibo extension levels to estimate where the trend movement will reach. There are 2 important Fibo extension levels: 61.8% & 100% Fibonacci Extension Levels, these are used for taking profit.
On the Fibonacci extension stock indices trading 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 upward - the Fibonacci extension stock indices indicator is also drawn upwards.
These Fibo extension levels are displayed as horizontal lines above Fibo Extension technical indicator, showing the profit taking areas. In the stock indices trading example explained and illustrated below if you had used of 100% Fibonacci extension you would have made nice profit from the indices trade setup.
Drawing Fibo Extension Zones on an Upwards Indices Trend - Fib Extension Strategies in Indices Trading
From the above Fibonacci extension indices trading examples, the upward trend continued and both 61.8% & 100.00% Fibonacci extension levels were all hit after which stock indices price retraced again after getting to the 100.0 % Fibonacci Extension level.
Drawing Fib Extension Areas on a Downwards Indices Trend
Since we use this Fibonacci extension indicator tool to estimate indices take profit levels, how do we draw it in a downwards trend?
We draw the Fibonacci extension indicator from stock chart point 1 to 2 to 3 as shown below. Remember we always plot this Fibonacci extension tool in direction of the stock indices trend. In the Fibonacci extension stock indices trading example explained and illustrated below, can you figure what direction we have drawn it? That is right - downwards direction on the stock indices trading chart.
Try & identify the difference between how we have drawn the Fibo extension above & how Fibonacci Extension is drawn below. This time you would also have used Fibonacci extension level 100%, just where the stock indices price reached as illustrated on the stock indices trading example explained and illustrated below. That would have been a nice indices take profit area.
Fibonacci Extension Strategies in Indices Trading
From the Fibonacci extension stock indices trading example above, after plotting this Fibonacci extension 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 trading stock indices price chart.
How Do You Interpret Fibonacci Extension Levels in Indices Trading?
