How to Draw Fibonacci Extension Indicator Tool on Downwards Indices Trend

How Do I Draw Fibonacci Extension for Indices Downtrend?

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

As a indices trader you would also have used Fibonacci Extension level 100.0%, just where the stock indices price reached as shown on the Fibonacci Extension example explained and illustrated below. That would have been a good take profit area.

How to Draw Fibonacci Extension on Down Indices Trend

From the Fibonacci Extension indicator tool example above, after drawing this Fibonacci Extension indicator tool there are two levels that are used to show the profit taking levels, these two Fibonacci Extension levels are drawn as horizontal lines across the stock indices chart marked as 61.8% Fibonacci Extension Level and 100% Fibonacci Extension Level.

Explanation of How to Draw Fibonacci Extension Levels on Stock Indices Charts

We use Fibonacci Extension Levels to estimate where the indices trend movement will reach. There are 2 commonly used Fibonacci Extension levels; 61.8% Fibonacci Extension Level and 100% Fibonacci Extension Levels, these are used for setting taking 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 the original direction of the Indices trend. Where the stock indices price retracement reaches is used as chart point 3. Fibonacci Extension Indicator tool is drawn using three chart points as shown on the stock indices trading example explained and illustrated below of how to draw the Fibonacci Extension Indicator Tool.

The Fibonacci Extension example explained and illustrated below shows the 3 Chart Points where the Fibonacci Extension indicator is drawn, marked as Chart point 1, Chart point 2 and Chart point 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 Extension Indicator Tool example explained and illustrated below.

How to Draw Fibonacci Extension Indicator Tool on Downwards Indices Trend

Please note where these Fibonacci Extension levels are drawn - Fibonacci Extension levels are drawn above the Fibonacci indicator, these are the chart points where a indices trader will set the take profit orders using these Fibonacci Extension Levels - 61.8% Fibonacci Extension Level and 100.0% Fibonacci Extension Level.