Basically, the Fibonacci extensions level is a technical tool, some trader said if this is the same with Fibo expansion. With function to predict how far prices will continue to move towards the main trend.
After a temporary retracement, many traders use this to help analyze before making trading decisions So the main points you need to underline are the main trends and projections of price movements.
The picture above gives information point A to point B is the main trend, while point B to point C is Retracement. Traders will use Fibo Expansion to project the extent to which prices will again move in the direction of the main trend.
After having “pulled back” to the retracement point Generally, the third wave is the strongest and longest movement during the trend with targets ranging between FE (Fibonacci Expansion) levels 0.5, 0.68, 1, 1.27, to 1.68.
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Fibonacci extensions level vs retracements
The method of using Fibo Expansion is different from using Fibo Retracement. The key to the comparison lies in predicting where prices will move (projections) from the main trend. From the point of view of the theory of Elliott Wave.
The way Fibo Expansion trading is intended to estimate the third wavelength and (if the trend is strong) the fifth wave of the main trend, usually used to determine a target.
While Fibo Retracement is used to map the second or fourth wave as a correction of the main trend.
Technically, Fibo Retracement is more multifunctional because it can help traders predict corrections while continuing trends.
Then in what situations do Fibo Expansion trading methods more useful than Fibo Retracement? If you only use Fibo Retracement, you cannot measure how far further prices move in the direction of the main trend after experiencing a correction.
That is why traders use Fibo Expansion because of its main advantage in mapping trend continuation levels. In practice, traders can combine Fibo Expansion with Fibo Retracement to get the best signal.
The analogy, Fibo Retracement is used as a Start line to open a position. While Fibo Expansion is a Finish line to close a trading position.
Fibonacci extensions level calculator
The Fibonacci Calculator will show you retracement and extension levels. According to the popular Fibo theory used in forex trading to predict potential points for entry and exit.
To use it, you simply enter the highest price point on the timeframe you observed in the High column, then enter the lowest price point on the timeframe in the Low column.
The calculator will automatically calculate the retracement and extension levels that you need to observe in trading. Some major sites have provided Fibonacci extension calculators and traders only enter high and low prices and then calculate them.
How to draw Fibonacci extension in mt4?
On the popular trading platform Metatrader (MT4 / MT5) tools are available to create Fibo Expansion levels.
It’s easy, you can access the tool by clicking the dropdown menu in the following order: Insert —->Fibonacci —-> Expansion
First, hover over the chart, then determine the location of the main trend by identifying points 1 and 2.
Second, set points 2 and 3 to determine the position of retracement. Next, the levels (default: yellow line) of the Fibonacci Expansion will appear on the chart.
If you want additional levels, set the option by right-clicking on the Fibonacci Expansion line or pressing the CTRL + B button on the keyboard.
In the Expansion options window select the “Fibo Levels” tab, select “Add” to add the Fibo Expansion level as needed.
Making Fibo levels Expansion is easier than Fibo Retracement because you don’t need to determine where the Swing High and Swing Low points are. So, there is no longer a possibility for beginners to reverse determine the starting and ending points.
How to use Fibonacci time extensions
Fibonacci Time Extensions level are used to predict periods of price changes (ie high or low). For example, after a downtrend, reversals might be expected in the line of significant Fibonacci Time Extensions.
Likewise, after an uptrend, a reversal warning might occur if the Fibonacci Time Extensions immediately approach.
The Fibonacci Time Extensions tool is made by placing significant height (low) and finding a significant retracement or low extension (high). The main Fibonacci ratio is then calculated and plotted by charting software.
Fibonacci is often used by traders. Regardless of whether a trader believes or not about opinion Fibonacci ratios work in nature and into financial markets.
Traders should understand Fibonacci Retracements (most commonly used) and other Fibonacci Tools.
Because there are many traders out there who believe that the Fibonacci ratio applies to financial markets, which presupposes that there may be a real supply and demand-supply that works on the market at this important Fibonacci lag time.
This will be important because, after all, supply and demand is a concept that moves the market.
Trade using Fibonacci retracement and extension levels
How to trade using Fibo Expansion allows high flexibility. This means you can combine it with other indicators to improve accuracy.
Let say, with an oscillator indicator (MACD, RSI, etc.) along with signals from the candlestick formation (Price Action) to determine the Entry. With use, Fibo expansions can also utilize FE levels to determine the points of closing positions (Exit point) Traders can also combine using the Fibo retracement, each of which has a different function but can complement each other
The steps to using the Fibonacci extension are
Find pairs with a strong trend
Strong trend conditions can be found on all kinds of pairs and Timeframe like GBPJPY, EURGBP, etc
However, if you are a beginner, it is better to choose Major Pair (EUR / USD, GBP / USD, USD / JPY) and Timeframe H4 to Daily to reduce the risk of price volatility.
From the example above you can use the Fibo retracement level indicating that this movement has retraced the 61.8% level.
The chart also shows an area of support at the Fibo retracement level.
While the Fibo extension indicates that the extension level of 1.618% will bring prices down to the area of 1.0715.
If you add another indicator then by using this Fibo extension and retracement combination it will help you to map the profit target by using the Fibo expansion level
Create Fibonacci Expansion levels.
Fibonacci Expansion levels can only be determined if the price will move in the direction of the main trend.
In other words, expansion levels only apply when the correction or retracement has ended, then the price displays the potential to move back in the direction of the main trend.
Maybe the question is, how do you know when prices will move back in the same direction as the main trend? we can use several alternatives to identify it:
Use Fibonacci Retracements
With this tool to estimate trend strength based on length of correction (Retracement): generally strong trend conditions are when Retracement ends in the range of Fibonacci Retracement levels 0.38 to 0.50.
Look at the candlestick formations during Retracement
candle formations such as Pin Bar and Inside Bar can signal the end of the retracement.
For this, you also should learn about candle formations that will add to your insight and combine with a trading system with a Fibonacci extension
Use supporting indicators to look for signal confirmation
By adding indicators such as Bollinger Bands, RSI, and MACD you can use the function of the indicator to determine the end of the retracement, but you don’t need to use all of these indicators, just one as an auxiliary tool, because if everything is plotted in the graph it will make a low responding to your mt4
Determine the Entry and Exit Trading Rules.
If you already getting Fibonacci Expansion levels, you must determine when the trading position can be opened, then closed.
Entry and Exit Rules can vary from one trader to another, depending on their trading system. But at least, the trader must be able to ensure the target profit and loss limit, you can use standard risk-reward ratio 1:1 for at least.
By using the Fibonacci expansions you can divide several trading positions and use level expansion as a target
But you have to be flexible in terms of the risk-reward ratio, for example by using 1: 3 which means that if the stop loss of 20 pips the target can be 60 pips
The position can be closed when the price approaches the range of the Fibonacci Expansion levels 50 to 61.8. If you take greater risk, the position can be maintained until it reaches the next Expansion level, which is 1.27 and 1.68.
Fibonacci is a trading tool that is useful to determine the reversal of price movement.
In this case, the Fibonacci retracement allows being a reference for price movements to determine the pullback as a reference for entry
While the Fibonacci extension is a trader’s tool that is useful for determining the level of targets to be achieved However, the pattern of price movements in the market is very dynamic.
Price changes due to differences in demand and supply and many factors that influence it, economic news, changes in interest rates, and so on. So that in practice you still need to apply money management and risk management that are well measured.
So that will increase your chances of opening new entry points from your margins
Are you ready to start trading?