We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • $GBPUSD at the moment break-even straddles = 152pips meaning that for option traders to realize gains, the spot price must see a move greater than 152pips. Get your market update from @JMcQueenFX here: https://t.co/odj2lLRrGf https://t.co/RXCBwHGluG
  • $EURGBP has fallen over 6% since August and is now rapidly approaching a critical support level not reached since May. Will a break below accelerate the aggressive selloff? Find out from @ZabelinDimitri here: https://t.co/CBM8Fg7vM0 https://t.co/0yDnEpzQqR
  • The #Euro is struggling for direction against the US Dollar but the near-term downtrend guiding it lower since late June remains firmly intact. Where is $EURUSD heading? Get your technical analysis from @IlyaSpivak here: https://t.co/us6AINmuoe https://t.co/J4hQtyprYf
  • $DXY & $SPX500 hold steady after #FED rate cut. Get your update from @JohnKicklighter here: https://t.co/vqXlKCMDYA
  • Dow Jones & Dax 30 levels to watch ahead of the fed from @PeterHanksFX here: https://t.co/iUIrsygKz2
  • The politics of the US and UK may be starkly divided but their grip on the vast, $6.6 trillion global foreign exchange trade seems as tight as ever. Get your market update from @DavidCottleFX here:https://t.co/xTKHOvrIqg https://t.co/vtHhdnF82Q
  • How can confidence in trading help with avoiding #FOMOintrading? Find out from @WVenketas here: https://t.co/MY7j9ISn4S https://t.co/n7XwfiDZz2
  • The week saw a slightly more dovish than expected RBA minutes increase the importance of the latest labour market report, which showed an uptick in the unemployment rate to 5.3%. Where is $AUDUSD heading? Find out from @JMcQueenFX here: https://t.co/odj2lLRrGf https://t.co/gmGjlGBvjv
  • #OOTT https://t.co/TLgP7dUqFv
  • #Silver’s recent bull run may have run its course in the short-term with the sharp sell-off from the September 4 high print at $19.66/oz.Where is Silver heading? Get your market update from @nickcawley1 here: https://t.co/oVAZ4wPR7z https://t.co/1LvLXmqnwx
How to Use Fibonacci Expansions

How to Use Fibonacci Expansions

2013-12-09 19:58:00
Rob Pasche, Forex Trading Instructor
Share:

Fibonacci Expansions Talking Points:

  • Fibonacci Expansions plot possible levels of support and resistance.
  • They are created by tracking primary trending moves and their retracements.
  • Traders can use Fibonacci Expansions to set multiple profit targets for their trades.

A concept I always teach is the importance of using support and resistance levels to decide when to get out of positions. Just like getting a good entry is important for a successful trade, you must also ensure you are exiting your trades at levels that maximize your gains. This article aims to assist traders in finding profit maximizing exit levels using Fibonacci Expansions.

What are Fibonacci Expansions?

Fibonacci Expansions are price levels created by tracking a price’s primary move and its retracement. The resulting price levels are then drawn on the chart in an area that would normally be difficult to gauge support and resistance using ordinary charting tools. This makes Fibonacci Expansion especially useful for picking profit targets when trading trends.

When faced with an upward trending currency pair, there are going to be times when price temporarily moves counter to the trend. We call these moves pullbacks or retracements. Once this counter move is exhausted, price resumes back in the direction of the primary trend and often times will break to new highs. It is at that moment, that Fibonacci can be used.

While the familiar Fibonacci Retracementsare used to determine how far the price might originally retrace, Fibonacci Expansions can help us determine where price might head after the retracement is exhausted. On the EUR/USD daily chart below, I have highlighted a primary move followed by a retracement move.

Learn Forex: Simple Moving Average Crossover (With Trend Filter)

fibonacci expansion forex chart

How Do You Draw Fibonacci Expansions?

Learn Forex: Adding the Fibonacci Expansion/Extension

adding the fibonacci expansion tool on IG

Once you have selected Fibonacci Expansions, we will need to select three price points to setup the tool properly. We will click a total of 3 times on the chart at the following price levels, in the following order.

  1. The beginning of the primary move, the low.
  2. The end of the primary move, the high.
  3. The retracement, the swing low.

After clicking OK, we should see several horizontal lines projected on the chart.

Learn Forex: Drawing and Reading the Fibonacci Expansion

Fibonacci expansion profit targets

How Do You Interpret Fibonacci Expansions?

This particular example on the EUR/USD daily chart is utilizing the more popular 0.618, 1.000 and 1.618 expansions. (There are also optional expansions at the 2.618 and 4.236 levels that you could add). All these lines can be considered resistance levels as the price trends higher, making them perfect areas to place profit targets.

We can see that price quickly hit the 1st profit target before consolidating, and then later broke upwards towards the 2nd profit target before retracing lower. It hit each of these prices on the nose before price regrouped for its next move. This gave us some spectacular exits for a long trade. If we remained a EUR/USD bull, our next target would be right below 1.4250 (at the 1.618 Fibonacci Expansion).

Scaling out of a trade with multiple targets is an effective money management strategy allowing you to lock in profits as the position matures. Just like diversifying your portfolio can help smooth out your overall returns, having multiple profit targets smooth out your returns on a trade by trade basis.

Frequently Asked Questions (FAQS)

Can you manage risk using fibonacci expansions?

Yes. Managing risk involves using take-profits, stop-losses and limiting leverage. Fibonacci expansions can be used to exit a trade using the profit targets spoken about above. A stop-loss can be used below the first retracement to ensure a positive risk-reward ratio. At DailyFX we recommend using a positive risk-reward ratio on all trades and limiting the amount of capital risked to 1% per trade. There is a lot thats goes into becoming a successful trader, like positive risk-reward ratios and discipline. If you are new to trading we recommend you download our free Forex For Beginners guide to ensure you start on the right path.

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.