Previous Story
Fibonacci Extensions – Forex Trading Strategy
Welcome to this very short presentation on Fibonacci Extensions.
Now, you’ve probably heard of the Fibonacci tool. We done an earlier video on what the Fibonacci retracements (watch it here) are but we just do a quick refresher in this video to help you understand the concept of Fibonacci extensions
So basically, the way it works is we got the wave of price action here and we want to let’s say to buy this but we don’t want to buy at the top here. We want to wait for the price to pull back. So where do we wait for the price to pull back? Where do we get in? What’s when the Fibonacci tool comes in handy. So here obviously the price pulls back and when we apply the the Fibonacci tool to this wave it gives us a certain level of retreacement. wWe got the 23.6%, we got the 38.2%, we’ve got a 50% and, of course, we got the 61.8%.
Now each of these retracement levels also has or can have a corresponding extension level. And the extension level is where you take your profits. So if you get in at the 38.2% or if the price only pulls back to the 38.2% than, of course, we expect the price to extend up to the equivalent extension. Now if your price pulls back to the 61.8% again we expect the price will when rally to the corresponding extension.
Now that’s not always the case. It’s not a fixed rule and that’s actually not the way I use Fibonacci extensions. I use them very very rarely in my own trading. When I do use them I use the 127 extension here which, of course, doesn’t correspond to retracement level but it’s just a very widely known and widely used extension level in the Fibonacci world.
So the way it works is this: you use the retracement levels to get in and the Fibonacci tool automatically plots the extension levels above the price. So if we draw a Fibonacci on here to buy it, the extension levels will be plotted up here, away from the price. Obviously upwards because we expecting the price to go up. If we apply this Fibonacci on the downward move the extensions than will be below the price. Once again, basically this is a concept of using Fibonacci extensions as the profit targets for your trades.
So the three most popular Fibonacci extensions, the ones that I use are the 100%, the 127%, the 161.8%. But like I said, there’s lots of others and you can also get them to correspond with each of the retracement levels. There’s no hard and fast rules but generally they are just used as profit-taking tools.
The post Fibonacci Extensions – Forex Trading Strategy appeared first on Jarratt Davis.
