Fibonacci Extensions in forex chart: by using this level, the trader gets an idea about the exact level at which the entry should be closed. Many of us use Forex Chat Fibonacci Retracement Level only and do not know about extension level. So in today’s article, we will learn about how to close forex entry positions using this level.
But first, we need to learn how to draw this extension level?
The process is simple. With just three clicks you can draw Fibonacci extension levels on the chart.
For uptrend – Traders use this Fibonacci Extensions level to know where we will take our profit, that is, where we will close the trade.
First, we need to determine the latest Swing Low of the price according to the formula to use Fibonacci retracement in the price of the uptrend.
Second, you need to determine the Swing High of the price.
Third, move the cursor down from the Swing High point with the mouse cursor to any retracement level. Easy or not?
Let’s see an example! Below is a chart of USD / CHF currency pairs. We also discussed this chart in a previous lecture.
As can be seen from the chart, the price has not been able to break the 50.0% support level, and even then the price has started rising again. At one point, the price breaks the previous swing high point and rises even higher.So let’s use the Fibonacci Extensions level to see-
Where you can make a good profit if you close the entry?
Some important information from the image -The price broke the 61.8% level which was close to our previous swing high price. The price then moved back to the 38.2% level and formed a support. Price then starts to rise again and comes to 100% level creating a resistance. After a few days, the price started to rise further and came to the last 161.8% level creating resistance. As you can see from the chart above, Fibonacci Extensions levels 61.8%, 100%, and 161.8% were the best places to take profits.
Now let us try this tool for a downtrend market:
For downtrend – The chart below is of an H1 timeframe of EUR / USD currency pairs. We used this chart in the previous lecture.
Where a Doji pattern was formed by going to the level of 61.8% and then the price started coming down in a big way and it started moving closer to our previous swing low point. Let’s use the Fibonacci Extensions tool in this chart to select the location where the profit can be taken.
Some important information from the image –
Accepts 38.2% level as price support.
The price then moves to the 50.0% level and creates temporary support and continues to move around this level.
The price then moves to the 61.8% level and again creates temporary support and keeps moving around this level.
Eventually, the price moves further down with more strength and comes closer to the previous swing low point again creating new support.
Here we can come close to the level of 38.2%, 50.0%, or 61.8% and close our entry to make a profit. One of these levels acts as strong support as other traders also start taking their profits at these levels.
From the above two examples, we have tried to show you how to close an entry using this Fibonacci extensions level. We often get a question –
“Do these levels always work?”
The answer is no!
Of course, it works, but the problem is – there is no way to know exactly what level of a Fibonacci extension will go to form price support or resistance.
These levels are determined by the trader himself. So you have to practice a lot and set these levels for yourself. For now, let’s not know how to determine the stop-loss level through Fibonacci!