How to Draw Fibo Extension Levels on Upward Bitcoin Trend & Downward Bitcoin Trend
We have looked at Fibonacci retracement in the previous learn Bitcoin trading lesson, drawn between 2 chart points. But to plot Fibonacci expansion levels we use 3 chart points.
To draw these levels we wait until the retracement is complete and the BTCUSD cryptocurrency starts to move in the original direction of the Bitcoin price trend. Where the pullback gets-to is used as point 3.
The example below shows the 3 Points where the Fib extension levels indicator is drawn - marked as 1, 2 & 3. Point 1 is where the market trend started, Point 2 is where the trend started to be pulled back and retraced and Point 3 is where the retracement reached as depicted on the example below.
BTCUSD Crypto Fibonacci Expansion Areas
Please note where these Fibonacci expansion levels are plotted - they are drawn above the Fibonacci expansion indicator, these are the areas where trader will set takeprofit orders.
Drawing Fibonacci Extension Levels on an Upward Bitcoin Price Trend
We use Fib extension levels to estimate where the movement will reach. There are two important Fibonacci extension levels; 61.8 % Fibonacci expansion level and 100 % Fibonacci expansion level, these levels are used for taking profit.
On the example below you can see that the Fibonacci extension is drawn along the direction of the market trend, since the trend is upwards - the Fib expansion is drawn upwards.
These Fibonacci expansion levels are displayed as horizontal lines above the indicator, showing profit booking zones. In the example below if you had used of 100 % Fibonacci extension you would have made nice profit from the buy trade.
NB: This is the same trade from the previous example where we used Fibonacci retracement to buy at around retracement level 38.2 % Fib retracement level. At the same time we have used Fibonacci expansion level 100 % to set take profit level. Now find a Bitcoin price chart & practice these strategies.
Fib Extension Levels Drawn on an Upward Bitcoin Price Trend
From the examples above, the upward trend continued and both Fib Expansion 61.8 % and 100.0 % levels were all hit after which price retraced again after hitting the 100.0 % Fibonacci extension level.
Drawing Fibonacci Expansion Areas on a Downwards Bitcoin Price Trend
Since we use this Fib Expansion tool to estimate take profits levels, how do we draw it in a downwards Bitcoin price trend?
We plot Fib expansion levels indicator from point 1 to 2 to 3 as illustrated below. Remember we always plot this Fib Expansion tool in the direction of the market trend. In the example below, can you figure what direction we have drawn it? That is right - downwards because the trend is downwards.
Try and see the difference between how we have drawn it above and how it is drawn below. This time you'd also have used Fib extension level 100 %, see just where the price reached. That would have been a nice take profit level.
Fib Extension Levels Drawn on a Downward Bitcoin Price Trend
From the example above, after drawing this Fibonacci expansion tool there are two levels that are used to show the taking profit zones, these two levels are plotted as horizontal lines across the Bitcoin price chart (these levels are 61.8 % Fibonacci expansion level and 100 % Fibonacci expansion level as shown above).
