Fibonacci Extensions

Fibonacci Extensions
This use of Fibonacci levels will be used to determine points to achieve or goals.

Let's look at an example in a rising trend.

In a bullish trend, the general idea is to make a profit from a buyout (going long) with a Fibonacci extension level in the price.

The Fibonacci extension level is determined with three clicks. The first click is done at a significant low oscillation point, then you trace the cursor and click on the most recent high oscillation point. Finally, you draw the cursor down and click on the swing point of the backspace. This will show each of the levels of price extension, and will show both the proportions and the price levels. [It may vary by trading platform]

In this one-hour USD / CHF chart, we have placed the Fibonacci extension levels by clicking on the low swing point at 1.2447 on 8/14/05, we trace the cursor to the high swing point at 1.2593 on the 8 / 15/05, and then we reached the low swing swing point of 1.2541 on 8/15/05. The fibonacci extension levels created were: 1.2597 (0.382), 1.2631 (0.618), 1.2687 (1,000), 1.2743 (1.382), 1.2760 (1.500), and 1.2777 (1.618).

[caption id="attachment_563" align="aligncenter" width="500"] Fibonacci Extensions[/caption]

Now let's pay attention to what actually happened after the low back swing:

• The market surpassed the level of 0.500


• Returned to retraction point at low oscillation


• Then he raised the 0.500


• It came back a little
  I spent the 0.618


• Low again to the level of 0.382, which acted as support


• Then he passed the level of 1,382


• Consolidated moments


• Finally it rose again and surpassed the level of 1,500

 

[caption id="attachment_564" align="aligncenter" width="500"] Fibonacci Extensions[/caption]

It can be seen from these examples that the market generally finds at least temporary resistance at Fibonacci extension levels, not always, but often. As in the examples of the Fibonacci retreatment levels, it is notable that we also deal with some problems here.

First, there is no way to know which level will give us resistance. The level of 0.500 is a good level to cover long operations.

Another problem is to determine which low oscillation point to use to start creating Fibonacci extension levels. One form is from the last low oscillation point as done in the previous examples; Another form is from the low oscillation point of the last 30 bars. Again, there is no exact way to do it and therefore it becomes a guessing game.
Now let's look at how to use Fibonacci extension levels in a downtrend.

In a bearish trend, the general idea is to make profit gains from a long operation with a Fibonacci extension level in price, since the market usually finds temporary supports at these levels.

In this 1 hour EUR / USD chart, we place the Fibonacci extension levels by clicking on the high swing at 1.21377 on 7/15/05, we plot the line to the low swing point at 1.2021 on 8/15/05 And then we lowered to the high retraction of 1.2085. The fibonacci extension levels were: 1.2041 (0.382), 1.2027 (0.500), 1.2013 (0.618), 1.1969 (1,000), 1.1925 (1.382), 1.1911 (1.500), and 1.1897 (1.618).

 

[caption id="attachment_565" align="aligncenter" width="500"] Fibonacci Extensions[/caption]

Now let's look at what really happened after the low back swing:

• 1. The market fell almost to the level of 0.382, which acted as support.


• 2. Then the market, moved in the low swing back and the level of 0.382.


• 3. Finally, the market passed the 0.382 and rest at the level of 0.500


• 4. It then broke at the level of 0.500 and fell to the level of 1,000
   
  
  [caption id="attachment_566" align="aligncenter" width="500"] Fibonacci Extensions[/caption]

By themselves, fibonacci levels will not make you a millionaire. However, fibonacci levels are very useful as part of an effective trading method that includes other types of analysis and trading techniques. As you can see, the key to an effective trading system is to integrate several indicators (but not many because they would become too complex) to be applied in a way that is not obvious to most observers.

All the successful traders in the Forex currency market know that it is the way in which indicators are used and integrated that makes the difference. The lesson learned from this article is that Fibonacci levels can be a successful tool, but you should never place an operation based solely on a Fibonacci level.

 

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.