How to Draw Fib Extension Technical IndicatorTool on Charts

How Do I Use Fibonacci Extensions on Chart?

We use Fibonacci Extension Areas to estimate where the market trend movement will reach. There are two important Fibonacci Extension areas: 61.80% and 100% Fibonacci Extensions, these are used for taking profit.

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

The Fib Extension example explained below shows the 3 Chart Points where the Fibonacci Extension indicator is plotted, marked as Chart point 1, Chart point two & Chart point 3.

Chart point 1 is where the trend started, Chart point 2 is where the trend pulled back and retraced and Chart point 3 is where the retracement reached as shown on the Fib Extension Indicator Tool examples explained below.

How to Trade with Fibonacci Extension? - How to Draw Fib Extensions on Charts

Please note where these Fibonacci Extension areas are plotted - Fibonacci Extension zones are drawn above the Fibonacci indicator, these are the chart points where one will set takeprofit orders using these Fib Extension Levels - 61.80% and 100.00% Fibonacci Extension Areas.

Drawing Fibo Extension Zones on an Upwards Trend

We use Fibonacci Extension Areas to estimate where the market trend movement will reach. There are two important Fib Extension areas: 61.80% Fibonacci Extension Level & 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 indicator tool is plotted along the direction of the trend, since the trend is upward - the Fibonacci Extension indicator is plotted upwards.

These Fibonacci Extension levels are displayed as horizontal lines above the Fib Extension indicator, showing the profit taking areas. In the example explained below if you had used 100.00% Fib Extension level you would have made good profit from this trade setup.

Drawing Fibonacci Extension Indicator in an Up-ward Trend - Fibonacci Extension Tool

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

Drawing Fibonacci Extension Areas on a Downwards Trend

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

We draw the Fibo Extension indicator tool from chart point 1 to chart point 2 to chart point 3 as displayed on the example explained below. Remember we always draw this Fibonacci Extension tool in direction of the trend. In the Fibonacci Extension example explained below, can you figureout what's the direction which we have plotted it? That's right - downwards direction.

Try and identify the difference between how we have drawn Fibo Extension indicator above and how Fibo Extension indicator is plotted below. This time you would also have used Fib Extension zone 100.00 %, just where the price reached as illustrated on the trading examples explained below. That would have been a good take profit area.

Drawing Fibonacci Extension Indicator in a Downward Trend - Fibonacci Extension Tool

From the Fibonacci Extension indicator example above, after plotting this Fibonacci Extension tool there are two levels that are used to show the profit taking areas, these 2 Fibonacci Extension levels are plotted as horizontal lines across the price chart marked as 61.8 % Fibo Extension Level and 100% Fibonacci Extension Level.