What is Fibonacci Expansion?
Fibonacci Expansion/Extension is a tool used to measure price extension, which means identifying potential price levels where the price is likely to move. It is based on the Elliott Wave theory, using Fibonacci ratios to find the third wave, which often serves as a take-profit (TP) target.
How to activate Fibonacci Expansion
To use it, you can activate Fibonacci Expansion in MT4 by going to the menu: Insert > Fibonacci > Fibonacci Expansion.
Next, determine the current trend. If it is an uptrend, draw the Fibonacci Expansion from the most recent swing Low > High > Low. If it is a downtrend, draw from High > Low > High, or from points A to B to C as shown in the image. This will give you the Fibonacci levels of 61.8%, 100.0%, and 161.8%.
How to trade using Fibonacci Expansion
We analyze the price trend during the period we want to study. For example, if the market is in a downtrend, we draw the Fibonacci Expansion from the previous High (point A) down to the latest Swing Low (point B), then back up to the current High (point C). Point C will be the area where we place our order.
Once we have confirmed that the trend is a downtrend, meaning the price cannot make a new high above point A, point C becomes the level where we place a Sell order. After drawing the lines, we get the Fibonacci Expansion levels at 61.8%, 100.0%, and 161.8%. These levels act as measures of price extension, indicating potential targets where the price might reach or pause. We can use these Fibonacci Expansion levels as take-profit (TP) points.
