Ultimate Fibonacci Extension Trading Strategy (Dangerously Effective!)

Summary

This tutorial video guides viewers on setting up and utilizing the Fibonacci extension tool for trading. It explains how to configure the tool for optimal visibility and how to apply it to identify trade exit points during trend exhaustion. The video emphasizes the importance of combining Fibonacci levels with price action for better trade decisions and discusses the psychological reasons behind the significance of the 50%-61.8% and 100% extension levels as potential reversal zones. It also offers a bonus technique for higher quality exit points and encourages audience interaction for future content.

Takeaways

• 📊 To set up the Fibonacci extension tool, select 'trend-based FIB extension' from the tool options and adjust it on the chart by clicking and dragging.
• 🔧 Customize the Fibonacci extension settings to improve visibility and usability, such as removing unnecessary levels, changing background colors, and adjusting the font size and line thickness.
• 📈 Fibonacci extension levels are used to identify trade exit points due to trend exhaustion and profit-taking by larger market participants.
• 🌐 Apply the Fibonacci tool by clicking at the start of an impulse move, dragging to the start of a corrective move, and then extending it to the current impulse move's starting point.
• 🤔 Different traders may use different Fibonacci extension levels based on their strategy, emphasizing the need for personal customization.
• 📉 In an uptrend, the 50% to 61.8% Fibonacci extension zone is often the first area where significant profit-taking occurs, potentially leading to a pullback or reversal.
• 📈 In a downtrend, the same 50% to 61.8% Fibonacci extension zone can signal a possible trend change, providing an opportunity for traders to manage their short positions.
• 🎯 When the 50% to 61.8% Fibonacci extension aligns with a recent swing high or low, it can indicate a high-quality exit point due to the confluence of price levels and profit-taking behavior.
• 🔄 The 100% Fibonacci extension level signifies that the current move has traveled the same distance as the previous one, often a point of trend exhaustion and potential reversal.
• 📚 The script suggests that there are premium trading guides available that complement the video's content for a deeper understanding of the concepts.
• 👋 The video ends with a call to action for viewers to comment on what topics they'd like covered next, like the video to support the channel, and follow on Instagram for updates.

Q & A

How do you set up the Fibonacci extension tool on a trading chart?

To set up the Fibonacci extension tool, click the arrow beside 'Gann and Fibonacci tools' and select 'Trend-based Fib extension'. Click and drag your mouse from the start of the previous impulse move to the start of the corrective move, then to the starting point of the current impulse move.

What settings are recommended to customize the Fibonacci extension tool for better visibility?

The recommended settings include removing unused levels, removing the background color, changing the display to percentages, moving the percentages to the right side, aligning the percentages beside each FIB line, increasing the font size to 24, making the lines thicker, and changing the color of the lines to be consistent.

Why should you use Fibonacci extension levels in combination with price action?

Fibonacci levels should be used with price action to increase the quality of a trade entry or exit, as they are not an exact science and can provide additional confirmation for potential trend changes or exhaustion points.

How do you identify trade exit points using the Fibonacci extension tool in an uptrend?

In an uptrend, use the Fibonacci extension tool by clicking at the start of the previous impulse move and dragging to the start of the corrective move, then to the starting point of the current impulse move. Watch the 50% to 61.8% Fibonacci extension area for price action signaling a possible trend change.

What is the significance of the 50% to 61.8% Fibonacci extension area in identifying trade exits?

The 50% to 61.8% Fibonacci extension area is significant because it represents a halfway point of the previous impulse move, where large players often take profits, potentially triggering a pullback or reversal.

How can the Fibonacci extension tool be used to identify trade exits in a downtrend?

In a downtrend, apply the Fibonacci extension tool starting from the previous impulse move, through the corrective move, to the start of the current impulse move. Watch for price action signaling a trend change in the 50% to 61.8% Fibonacci extension area.

What is the psychological reason behind the effectiveness of the 100% Fibonacci extension level as an exit point?

The 100% Fibonacci extension level indicates that the current move has traveled the same distance as the previous move, suggesting trend exhaustion. It's often where large players close out positions, which can lead to a significant reversal or pullback.

How can the 100% Fibonacci extension level be used in conjunction with a recent swing high for trade exits?

When the 50% to 61.8% Fibonacci extension zone aligns with a recent swing high, it indicates a premium price point and potential profit-taking by large players. Watch for trend change price action at this level for exit opportunities.

What is a bonus technique mentioned in the script for using the Fibonacci extension tool?

A bonus technique is applying the Fibonacci extension tool to a larger uptrend to see if the 100% extension level aligns with the 100% extension level of a shorter-term trend, creating a confluence that enhances the quality of the exit point.

Where can viewers find additional trading guides that complement the information in the script?

Additional trading guides can be found on the website WIS trade.com, with the specific link provided in the video description.

How can viewers stay updated on future content and projects from the video creators?

Viewers can follow the creators on their Instagram account at ystream and hit the like button on the video to support the production of more free content.