Fibonacci Expansion
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What is Fibonacci Expansion?
Fibonacci expansion is a tool of technical analysis used to determine support and resistance levels based on the Fibonacci numbers.
Drawing Fibonacci Expansion
To draw a Fibonacci expansion, you should identify three points on the chart which circumscribe two waves:
On uptrend:
- Lowest low;
- Highest high;
- Higher low.
On downtrend:
- Highest high;
- Lowest low;
- Lower high.
Just draw a line through these points and your charting application will automatically draw levels of the Fibonacci expansion.
The base levels of Fibonacci expansion go through Fibonacci ratios 61.8%, 100% and 161.8% as displayed on the picture below:
The height of the first line is taken as a unit interval. The third point serves as a reference point for building an invisible vertical line. The Fibonacci expansion levels are drawn from the reference point on the interval equal to 61.8, 100%, and 161.8 per cent of the unit interval.
Trading with Fibonacci Expansion
It is considered that significant price changes should be expected near the Fibonacci expansion levels.
Similarly to Fibonacci Retracement, Fibonacci expansion levels act as support/resistance levels.
The support and resistance levels can be used for determining buy and sell points. The idea is to enter the market right after a pullback off the retracement, with a limit set at one of the expansion levels and a stop right under the last inflection point.
Using with Marketscope
You can draw a Fibonacci expansion in Marketscope.
To draw a Fibonacci expansion:
- Select the Fibonacci Expansion tool. For this, on the toolbar, click the Add Fibonacci arrow, and then click Add Fibonacci Expansion:
- Then in the appeared menu choose the appropriate mode in which the tool should be drawn:
- Snap to Nearest - in this mode the points of tools are automatically snapped to the nearest of the prices: High, Low or Close.
- Freehand - in this mode you can draw the tool anywhere in the chart regardless of the chart prices.
- High/Low - in this mode the points of tools are automatically snapped to High or Low prices.
- Close - in this mode the points of tools are automatically snapped to Close prices.
- Then in the appeared menu choose the appropriate mode in which the tool should be drawn:
- Click the point from which the first line will start.
- Click the point at which the first line will end. This line will be taken as a unit interval for building Fibonacci expansion levels.
- Click the point at which the second line will end. The points will be automatically adjusted according to the selected drawing mode if necessary.
The Add Fibonacci Expansion dialog box will appear. - On the Levels tab, you can choose which Fibonacci expansion levels will be drawn. By default, Marketscope draws levels 0.618, 1.000 and 1.618. You can select additional levels from the available set or add a new level by clicking the Add button. On this tab, you can also set the levels color and style and choose drawing the levels in the background under the prices.
- On the Parameters tab, you can choose whether the levels start and end should be extended. You can also set the name for the Fibonacci expansion and the parameters related to the Fibonacci expansion label and legend.
- On the Wave Lines tab, you can set price levels and date/time for the wave lines, select showing the wave lines and set color, style and width for the lines.
- After configuring all parameters, click OK. The Fibonacci expansion will be drawn on your chart.
To change the properties of a Fibonacci expansion, do one of the following:
- Double-click any line of the Fibonacci expansion.
- Right-click any line of the Fibonacci expansion, and then click Change 'Fibonacci Expansion Name', where Fibonacci Expansion Name is the name of the Fibonacci expansion.
You will see the Fibonacci Expansion Properties. Make the necessary changes, and then click OK.
Note that you can apply the changed properties (except the name) to all further Fibonacci expansions by default by clicking Set as Default in the dialog box.
To resize a Fibonacci expansion:
- Click the Fibonacci expansion. The wave lines will become thicker and three markers will appear on them.
- Drag the markers to the necessary places on the chart.
To move a Fibonacci expansion:
- Drag the Fibonacci expansion lines to the necessary place on the chart.
To remove a Fibonacci expansion, do one of the following:
- Right-click any line of the Fibonacci expansion, and then click Remove 'Fibonacci Expansion Name', where Fibonacci Expansion Name is the name of the Fibonacci expansion.
- Click any line of the Fibonacci expansion, and then press DELETE.
See Also
Fibonacci tools
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