I am using MT4.. I am having trouble with understanding Fibonacci extensions..
I learnt that there are two ways to draw fibonacci extensions.
1) Just draw fibonacci retracements in the opposite direction
2) Use fibonacci expansions..
But I am getting totally different lines in each way.. Look at the following charts.. The first chart has fibonacci extensions drawn with method one.. (The yellow lines). The second chart shows both. Why are they different? What am I doing wrong?
If I'm not mistake, retracement and expansions are two similar but different things. Retracements are use to get a good estimation on where price might hit a support or resistance level. It works to give the user an idea of where the price may reverse/retrace or break. Expansions on the other hand are what I use to distinguish good exit points or areas to scale in and load up on a move.
Again, people use them for different things but my advice to you is;
- Use retracements to identify key areas of support and resistance and potential areas to enter into a trade. Key levels are the 38.00%, 50.00% and 61.80%.
- Use expansions to identify area in which to take your profit/cut losses or areas in which if price moves past them to scale in on the move.
I hope this helps you somewhat but don’t forget that’s just the way I use them, many people use them in all kinds of creative ways but keeping it simple tends to equal better returns.
I understand all that... I just want to know if we can draw Fibonacci extensions by drawing Fibonacci retracements in the opposite direction.. Thats my first question... If the answer is yes, then the second questions will be why the lines are different when I follow both ways(Look at the charts)