How To Use The Fibonacci Extension Tool: Bearish example (like Chart)
A) Highest Top Point
B) Reversal Bottom Point
C) 2nd Highest Top Point (Note) Can NOT be higher then A Point.
D) Will be 3 points or targets, 1st target at 50% extension, 2nd target at 100% extension & 3rd target at 150% extension.
The rules for take profit orders are very individual, but most traders use it as follows:
A 50, 61.8 or 78.6 retracement will often go to the 161 Fibonacci extension after breaking through the 0%-level. A 38.2 retracement will often come to a halt at the 138 Fibonacci extension. Fibonacci extensions to the price moves. As you can see, the extensions provided great places for take profit orders.
Conclusion: Fibonaccis are multi-functional This demonstrated how to use Fibonaccis efficiently in trading. Don’t make the mistake of idealizing Fibonacci s and believing that they are superior over other tools and methods. Fibonacci is a great tool to have and can be used very effectively as another confirmation method. Whether you are a trend following or a support and resistance trader, or just looking for ideas how to place your take profit orders, Fibonaccis are a great addition to your arsenal.