Fibonacci Expansion Strategies in Indices Trading

Fibonacci expansion is drawn using 3 chart points.

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

The Fibonacci expansion example explained and illustrated below shows the 3 Chart Points where the Fibonacci expansion indicator is drawn, marked as Chart point 1, 2 and 3. Chart point 1 is where the indices trend started, Chart point 2 is where the indices trend pulled back and retraced and Chart point 3 is where the stock indices retracement reached as shown on the Fibonacci Expansion Tool example explained and illustrated below.

Fibonacci Expansion Strategy using Fibonacci Expansion Levels

Please note where these Fibonacci Expansion levels are drawn - Fibonacci Expansion levels are drawn above the Fibonacci Indicator, these are the points where the indices trader will set the take profit orders using these Fibonacci Expansion Levels - 61.8% and 100% Fibonacci Expansion Levels.

Drawing Fibonacci Expansion Levels on an Upward Indices Trend

We use Fibonacci expansion levels to estimate where the indices trend movement will reach. There are 2 important Fibonacci expansion levels; 61.8% and 100% Fibonacci Expansion Levels, these are used for taking profit.

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

These Fibonacci expansion levels are displayed as horizontal lines above the Fibonacci Expansion indicator, showing profit taking areas. In the stock indices trading example explained and illustrated below if you had used of 100% Fibonacci expansion you would have made nice profit from the trade setup.

Drawing Fibonacci Expansion Levels on an Upward Indices Trend - Fibonacci Expansion Strategies in Indices Trading

From the above Fibonacci expansion examples, the upward indices trend continued and both 61.8% and 100.0% Fibonacci expansion levels were all hit after which stock indices price retraced again after hitting the 100.0 % Fibonacci Expansion level.

Drawing Fibonacci Expansion Levels on a Downward Indices Trend

Since we use this Fibonacci expansion tool to estimate take profit levels, how do we draw it in a downward Indices trend?

We draw the Fibonacci expansion indicator from chart point 1 to 2 to 3 as shown below. Remember we always draw this Fibonacci expansion tool in the direction of the indices trend. In the Fibonacci expansion example explained and illustrated below, can you figure what direction we have drawn it? That is right - downwards direction.

Try and spot the difference between how we have drawn Fibonacci expansion above and how Fibonacci Expansion is drawn below. This time you would also have used Fibonacci expansion level 100%, just where the stock indices price reached as shown on the stock indices trading example explained and illustrated below. That would have been a nice take profit area.

Fibonacci Expansion Strategies in Indices Trading

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