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:
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 the price all the way back down to the Swing Low.
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:
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.
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