The Power of Fibonacci Extension Indicator in Trading

The Power of Fibonacci Extension Indicator in Trading

Introduction:

Welcome back traders! In this article, we will discuss “The Power of Fibonacci Extension Indicator in stock market trading.” As beginners, we often depend on indicators to help us understand the market. It sometimes feels like indicators hold the secret sauce that can assist us in analyzing the market. And to some extent, this belief is valid.

Indicators reveal valuable information that may not be easily visible to the naked eye. However, as we gain experience, our eyes become our indicators, and we no longer depend on externally created or artificial indicators. Even professional traders use various indicators, and in this article, I will talk about one indicator that is widely used by operators – the Fibonacci Extension indicator.

Understanding the Fibonacci Extension Indicator:

The Fibonacci Extension indicator is a tool that helps operators analyze and predict market movements. In general, there are multiple indicators used personally by retail traders, but operators use primarily a specific set of indicators or tools. The Fibonacci Extension is one such tool that I will discuss in this article. Before we go deeper into its functionality, let’s first understand the concept of the Fibonacci Retracement indicator.

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The Fibonacci Retracement Indicator:

The Fibonacci Retracement indicator is used by retail traders to identify potential reversal levels in the market. It consists of multiple levels, including 0.2, 0.3, 0.5, 0.6, and 0.7. These levels help traders determine the areas where the market may pause or reverse. When the market starts from point A and moves towards point B, the retracement levels act as support or resistance. By plotting these levels, traders can gain insights into the market’s behavior.

The Fibonacci Extension Indicator:

Unlike the Fibonacci Retracement indicator, the Fibonacci Extension indicator focuses on projecting potential price levels beyond the current market price. It helps traders identify targets or levels where the market may reverse or halt its movement. The Fibonacci Extension indicator consists of levels such as 1.618, 2.6, 3, and 4.2, which are plotted above the current market price. These levels provide valuable insights into potential market movements.

Applying the Fibonacci Extension Indicator

Applying the Fibonacci Extension Indicator:

Now that we understand the concept of the Fibonacci Extension indicator, let’s discuss how to apply it in trading. To plot the indicator on your chart, you need to adjust a few settings. Start by setting the levels 0, 1, 0.5, 0.618 and 0.786. You can leave the other settings at their default values, or you can customize them based on your preference. Once you have adjusted the settings, you will see the Fibonacci Extension levels on your chart.

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Using the Fibonacci Extension Indicator:

The Fibonacci Extension indicator can be used to find potential target levels or areas where the market may reverse. It is crucial for traders to observe the market closely and identify whether it extends in a particular direction. If the market extends in a specific direction, the Fibonacci Extension indicator can help traders determine target levels or areas where the market may reverse. By using this indicator, traders can make more informed trading decisions and capitalize on potential market movements.

An Example:

Let’s consider an example to illustrate the application of the Fibonacci Extension indicator. Suppose the market starts from point A and moves towards point B. If we plot the indicator from point A to point B, we will see the levels between one and zero. In this situation, the market respects the levels and begins to retrace.

However, even during the retracement, we can observe red candles, indicating that the market is attempting to find resistance . Finally, the market reverses from the retracement levels and continues its upward or downward movement, shows a strong recovery. This example shows how the Fibonacci Extension indicator can assist traders in identifying potential target levels and understanding the market’s behavior.

Conclusion:

The Fibonacci Extension indicator is a powerful tool that can help traders predict potential market movements and identify target levels. It complements the Fibonacci Retracement indicator and provides further insights into the market. While the Fibonacci Extension indicator may not be widely known or utilized, understanding its functionality can be beneficial for traders. By using this indicator, traders can improve their trading strategies and make more informed decisions. So, make sure to explore the Fibonacci Extension indicator and incorporate it into your trading analysis!

People also Ask Question | FAQ:

1. How powerful is Fibonacci retracement?

Ans: Some experts believe that Fibonacci retracements can forecast about 70% of market movements.

2. What is the 3 point Fibonacci extension?

Ans: Traders must identify three points on a price chart: the initial low (point A), the subsequent high (point B), and the pullback low (point C).

3. What is the strongest Fibonacci level?

Ans: 0.5 & 0.6

4. What is Fibonacci calculator?

Ans: This tool allows you to generate basic Fibonacci retracement and extension values in both up and down trends, by entering the high and low values of your choice.

5. Can I use Fibonacci retracement for intraday trading?

Ans: It is possible to make money intra-day trading using Fibonacci retracement levels as an indicator without any other indicators or chart analysis.

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