How to Take a Reasonable Profit with Fibo Extension During Corrective Market Sessions of Major Trend

The profit-taking price is one of three obligatory factors (the remaining two are the stop-loss price and open a position price) that you need to set before making a trade. However, most traders often ignore the profit-taking price, or do not have a reasonable profit-taking method but often take profit on a personal presentiment. This makes your profit significantly reduced, some traders even take profit early when the profit from that trade is not even equal to the amount they set to cut loss. A professional investor needs to realize that, even if their trading system is only 50%, or even lower, a reasonable profit-taking price compared to the stop-loss price (preferably 2 times or more up) will help them earn a profit.

In this article, the author will guide you to use the Fibo Extension tool to be able to set a reasonable profit taking price when you execute a buy/sell order during the correction phase of a market trend. For most experienced traders, they tend to trade during the corrective market phase (prices are pulled back to the MA line) rather than use catching- peaks/valleys method. This will help them to be more secured, at the same time, not to lose the opportunity to seek a greater speculative profit, because in a market trend, prices will move very far.

When trading at the adjusted price range, you will set a point at which profit taking price is considered reasonable enough. Actually, very few investors can answer this question properly, maybe they have another way to determine the profit-taking price, the author herein absolutely do not judge whether the tool they are using is right or wrong, because every individual acquaintances with the use of certain indicators, as long as they are effective.

The purpose of the article is to just recommend the Fibo Extension tool to determine the profit taking price, which can provide investors with more options or provide the new comers in this industry who have no idea how to determine the profit-taking price, some fundamental knowledge before they start their games.

How to create the Fibo Extension？

Tradingview gives every trader a chance to own an account for free, this tool is literally integrated in it. From the chart view, you can create it by just clicking on Gann and Fibonacci Tools >> Trend-Based Fib Extension. See the picture below

3 main components to draw Fibo Extension？

To draw the Fibo Extension, there are 3 points need to be identified

1. Previous bottom point

2. The latest peak in the current trend

3. New bottom point

Under which circumstance does Fibonacci Extension work the most effectively？

The important thing before using the Fibo Extension is that you need to understand exactly which tool is used in the market situation or time period. The Fibonacci Extension is used in a trending market and is drawn when you want to execute an order at the price line being pulled back to the MA line. Therefore, if the market is in an uptrend, the MAs need to slope upward; in a downtrend, the MAs need to slope downward; the new bottom area, the peak area before the pulled back price, the old bottom area and the MA lines must create a gap on the price chart marked with white parabola (see illustration).

How to draw the Fibonacci Extension？

l Click on the toolbar, connect the old bottom, the newly created peak of the trend, the new bottom when the market pulls back to the MA line, the Fibo levels will be created as shown in Figure 1.

l Use the Fibonacci Extension to determine profit taking prices

l Figure 2 illustrates how to use the Fibonacci Extension to determine profit taking prices of a gold price chart, under 1 day time frame.

l Fibonacci Extension creates many different levels of Fibo, but in the authors personal experience, you need to pay attention to 3 target price levels at Fibo 61.8; 1 and 1,618, and in fact, you only use 2 or 3 profit taking prices only.

l As you can see in Figure 2, the Fibo 61.8 mark is 1285.59; The Fibo 1 mark is 1302.51 and the Fibo 1,618 mark is 1329.87, which is achieved and these are the 3 profit-taking prices that you expected from the beginning.

l Normally, Fibo 61.8 and 1 marks are often achieved, Fibo 1,618 mark is only achieved when the market trend is very strong.

The Fibonacci Extension works effectively in most markets: commodities, indices, stocks, Forex, etc, and is applied to both uptrend and downtrend markets.

Figure 4 illustrates how to place profit taking using the Fibo Extension tool on the 1-day chart of SLB stock in an uptrend, similar to the gold price chart above, Fibo levels 61.8; 1 and 1,618 are achieved.

Figure 5 illustrates how to place a profit taking when you execute a short order using the Fibo Extension tool on the 1-day chart of WTI oil prices during the period of price pulling back to the MA line in a downtrend. The expected level of profit taking at Fibo 61.8 (USD 43.17); 1 (US $ 40.01) and 1,618 (US $ 34.89) are both achieved.

Conclusion

Fibo Extention is used as a tool to determine the profit-taking price in the big market trends that are very effective to be able to supplement your trading knowledge. The most important thing when using the Fibonacci Extension is that you need to recognize the major trends of the market to apply it most effectively. The author hopes that this article will help you successfully make profits with this tool during your trading process.