How to Draw Fib Expansion Trading Indicator on Charts
We use Fibonacci expansion areas to try to project where trend move will reach. There are two important Fib expansion areas: 61.8% & 100% Fib Extension Levels, these are used for profit taking.
To draw Fib Expansion levels on the stock chart we wait til the stock trading price retracement is complete & trading price begins heading in original direction of the trend. Where the stocks price pull back gets-to is used as point 3. Fib Expansion Indicator is plotted using three chart points as displayed on the stock example explained below of how to plot the Fibo Expansion Technical IndicatorTool.
The Fib expansion examples described below shows the Three Chart Points where the Fib expansion indicator is plotted, marked as Chart point 1, Chart point 2 & Chart point 3.
Chart point 1 is where trend started, Chart point 2 is where trend pulled back and retraced & Chart point 3 is where the stock retracement reached as portrayed on the Fibo Expansion Indicator Tool example explained below.
How to Trade with Fib Expansion? - How to Draw Fib Extension Levels on Charts
Please note where these Fibo Expansion zones are plotted - Fibonacci Expansion areas are plotted above the Fib indicator, these are the chart levels where a trader will place take profit orders using these Fibo Extension Levels - 61.8% and 100.00% Fibo Expansion Levels.
Drawing Fibonacci Expansion Levels on an Upwards Trend
We use Fibonacci expansion areas to try to project where trend move will reach. There are two important Fibonacci expansion areas: 61.8% Fibonacci Expansion Level & 100 % Fibo Expansion Level, these Fib Extension Levels are used for taking profit.
On the Fib expansion indicator example explained and illustrated below you can see that the Fibonacci expansion indicator is plotted along the direction of the trend, since the trend is up-wards - the Fibonacci expansion indicator is drawn upwards.
These Fib expansion levels are displayed as horizontal lines above Fib Expansion indicator, showing profit booking zones. In the stock trading example illustrated below if you had used the 100.00% Fib expansion level the you would have made good profit from the trade set-up.
Drawing Fibo Expansion Indicator in an Upward Trend - Fibo Expansion Tool
From the above Fib expansion indicator example, upward trend continued & both 61.8 % and 100.0 % Fib expansion levels were all hit after which price retraced again after getting to the 100.00 % Fibo Expansion level.
Drawing Fib Expansion Areas on a Downwards Trend
Since we use the Fibonacci expansion indicator tool to estimate take profit zones, how do we draw Fib Expansion in a downwards trend?
We draw the Fib expansion indicator tool from chart point 1 to chart point 2 to chart point 3 as illustrated on the stock trading example explained below. Remember we always draw this Fibonacci expansion tool in direction of the market trend. In the Fibonacci expansion example explained & illustrated below, can you figure what's the direction which we have plotted it? That's right - downwards direction.
Try and identify the difference between how we have drawn Fibonacci expansion indicator above and how Fibo Expansion tool is plotted below. This time you'd also have used Fib expansion area 100.0%, just where the stock trading price reached as displayed on the stock trading examples explained below. That would have been a good take profit zone.
Drawing Fibo Expansion Indicator in a Downward Trend - Fibo Expansion Tool
From the Fib expansion indicator example above, after drawing this Fibonacci expansion tool there are two levels that are used to show the profit booking zones, these two Fib extension levels are plotted as horizontal lines across the stock price chart marked as 61.8 percent Fib Expansion Level & 100 % Fibo Expansion Level.