G3-T7 How To Use Fibonacci Extensions To Know When To Take Profit

How to Use Fibonacci Extensions to Know
When to Take Profit

The next use of Fibonacci will be using them to find “take profit” targets.
Gotta always keep in mind “Zombieland Rules of Survival #22”:
When in doubt, know your way out!
Let’s start with an example of an uptrend.
In an uptrend, the general idea is to take profits on a long trade at a Fibonacci Price
Extension Level.
You determine the Fibonacci extension levels by using three mouse clicks.
First, click on a significant Swing Low, then drag your cursor and click on the most
recent Swing High. Finally, drag your cursor back down and click on any of the
retracement levels.
This will display each of the Price Extension Levels showing both the ratio and
corresponding price levels. Pretty neat, huh?
Let’s go back to that example with the USD/CHF chart we showed you in the previous
lesson.
1
The 50.0% Fib level held strongly as support and, after three tests, the pair finally
resumed its uptrend. In the chart above, you can even see the price rise above the
previous Swing High.
Let’s pop on the Fibonacci extension tool to see where would have been a good place
to take off some profits.
Here’s a recap of what happened after the retracement Swing Low occurred:
2
• Price rallied all the way to the 61.8% level, which lined up closely with the previous
Swing High.
• It fell back to the 38.2% level, where it found support
• Price then rallied and found resistance at the 100% level.
• A couple of days later, the price rallied yet again before finding resistance at the
161.8% level.
As you can see from the example, the 61.8%, 100%, and 161.8% levels all would have
been good places to take off some profits.
Now, let’s take a look at an example of using Fibonacci extension levels in a

downtrend.
In a downtrend, the general idea is to take profits on a short trade at a Fibonacci
extension level since the market often finds support at these levels.
Let’s take another look at that downtrend on the 1-hour EUR/USD chart we showed
you in the Fib Sticks lesson.
Here, we saw a doji form just under the 61.8% Fib level. Price then reversed as sellers
jumped back in, and brought price all the way back down to the Swing Low.
3
Let’s put up that Fib Extension tool to see where would have been some good places to
take profits had we shorted at the 61.8% retracement level.
Here’s what happened after the price reversed from the Fibonacci retracement level:
• Price found support at the 38.2% level
• The 50.0% level held as initial support, then became an area of interest
• The 61.8% level also became an area of interest, before price shot down to test the
previous Swing Low
• If you look ahead, you’ll find out that the 100% extension level also acted as support
We could have taken off profits at the 38.2%, 50.0%, or 61.8% levels. All these levels
acted as support, possibly because other traders were keeping an eye out for these
levels for profit-taking as well.
The examples illustrate that price finds at least some temporary support or resistance at
the Fibonacci extension levels – not always, but often enough to correctly adjust your
position to take profits and manage your risk.
Of course, there are some problems to deal with here.
4
First, there is no way to know which exact Fibonacci extension level will provide
resistance.
ANY of these levels may or may not act as support or resistance.
Another problem is determining which Swing Low to start from in creating the
Fibonacci extension levels.
One way is from the last Swing Low as we did in the examples; another is from the
lowest Swing Low of the past 30 bars.
Again, the point is that there is no one right way to do it, but with a lot of practice,
you’ll make better decisions of picking Swing points.
You will have to use your discretion in using the Fibonacci extension tool. You will
have to judge how much longer the trend will continue. Later on, we will teach you
methods to help you determine the strength of a trend.
For now, let’s move on to stop loss placement!

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How to Use Fibonacci Extensions to Know

When to Take Profit

Gotta always keep in mind “Zombieland Rules of Survival #22”:

When in doubt, know your way out!

Let’s start with an example of an uptrend.

• It fell back to the 38.2% level, where it found support

• Price then rallied and found resistance at the 100% level.

Now, let’s take a look at an example of using Fibonacci extension levels in a

• Price found support at the 38.2% level

previous Swing Low

ANY of these levels may or may not act as support or resistance.

For now, let’s move on to stop loss placement!

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