Hey guys, so in this video I'll be going in-depth and showing you how to draw Fibonacci for trading and I'll be covering Fibonacci retracements, Fibonacci expansions, and Fibonacci extensions. So if you enjoy this type of content and you'd like to see more of it, be sure to subscribe to the channel and like this video. So first let's start off with Fibonacci retracements. And a retracement is basically a pullback or a correction that's going against the main trend as price is trending in a single direction. So in this case we have a bullish trend because price is forming higher highs followed by higher lows.
So a retracement would be the counter trend movement that's going against the direction of the trend. And we know that when it comes to price action the market moves in waves. So in this case we have an upwards wave which is much stronger and larger compared to the corrective wave or the retracement.
Whatever you want to... refer to it as. And if price is ranging, then the impulsive movements or the movements that are going in the direction of the trend will be much larger compared to its retracements. So now let's go over how to use the Fibonacci retracement tool.
So first things first, before we get our Fibonacci retracement tool, we need to determine whether or not we have a bullish or a bearish impulsive move. And there's a little bit of subjectivity to it, but for the most part, An impulsive move or impulsive wave is a quick and volatile movement that covers a lot of space in a short amount of time. So in these two examples right here, this would be our bullish impulsive move and then this would be our bearish impulsive move. And these moves are the ones that we're going to be using our Fibonacci retracement tool on in order to measure the following move, which is our retracement, and compare it to the impulsive move. So now that we have our bullish or bearish impulsive move, we can get our Fibonacci retracement tool.
And if it's a bullish impulsive move, then we want to start with the low. So that's where we would connect our first point. And then we want to connect the second point to the high. And then we want to move to the right.
And hopefully you have these levels on. And if you don't have them on, then you can always turn them on in the settings. And you can decide whether or not you have Fibonacci.
decimal points on or the percentages on. Now I personally like to have the percentages on so I just keep these on. But now that we have this measured we can look to see. that as price retraced in this example we passed the 23.6 fibonacci level but we didn't reach the 38.2 level so we can estimate and we can say that price retraced about 25 maybe 27 percent compared to this move right here so so if we would take to take this move measure it out and move it to the side and do the same to the fibonacci retracement move or the corrective move then if we compare it then we can see that this compared to this move right here looks to be about 25 which is the whole purpose of the fibonacci retracement tool and why it only works on corrective movements or retracements and this is also why we don't want to start by connecting to the high first and then connect to the low for bullish impulse moves because then these levels would be flipped upside down and obviously we didn't retrace 70% of the way we only retraced about 25% of the way and so something that a lot of traders will do with Fibonacci's is if they are trading in the direction of a trend so in this case this is a bullish trend then they'll use their Fibonacci retracement tools and this is usually combined with price action and other factors so you wouldn't use them alone but this is typically where they would they might place their entries depending of course on what type of trend it is so in this example right here let's say it's a strong trend and so a trader might have someone might might want to get a better entry so they would place our their entry point at the 23.6 level and then as price or traces and it touches this level it would continue upwards if this is obviously a bullish trend. And they might even put their stop loss behind one of these levels.
But again, it depends what type of trend we're in. So what I mean by this is that, let me actually draw another example on the side over here. Let's say that we have two different types of bullish trends. One bullish trend looks like this where the retracements are quite small and then we have a second bullish trend where the retracements are much deeper. Now obviously if the retracements are deeper then we're expected to reach the lower Fibonacci levels.
So someone who's looking for an entry on a trend that's either slowing down or a trend that's within a channel of some sorts, then they might look to enter at the 61.8, 70.5, or 78.6 level versus someone who is trading within a strong trend that has a lot of volatility. and strength or momentum in it, then they might look at the 23.6, the 38.2, or maybe even the 50% Fibonacci retracement levels. And so now that I got the bullish impulsive move out of the way, we can move on to measuring the bearish impulsive move, which basically works the same way, except that instead of starting with the low, we would start by connecting the first point to the high, and then the second point to the low, and then once again we want to move this to the low. to the right so that we have more room to see the numbers and so in this example we see that price actually reached and retraced to the 38.2 level before it continued downwards again so again in this example if we had a trader who did their analysis and let's say the 38.2 lined up with a region of supply or whatever type of confluence or trading strategy they might have well then they would have their entry point right here.
Their stop loss might be behind one of these levels or higher, depending on what their trading style is. And they would enter at the 38.2 Fibonacci retracement level. And that's where they would sell.
So it all depends on personal preference, but this is typically how Fibonacci retracement levels are used, which helps a lot with... with having better entries if you're trading in the direction of a trend and you want to get in during one of the retracements. So now let's get into Fibonacci expansions and Fibonacci extensions, which are quite similar to each other, except for one little difference, which I'll get into in just a minute. But going back to Fibonacci retracements, if you recall, when it came to Fibonacci retracements, we used the Fibonacci retracement tool to measure the bearish or bullish impulse of waves in order to see how much price retreat. retraced against the impulsive wave before we saw a continuation of price.
So a similar concept would apply to the Fibonacci expansion and the Fibonacci extension, where once again, we need to start off with either a bullish or a bearish impulsive wave. But the difference here is that we're no longer concerned about how much price is retracing for the corrective wave. What we're more concerned about is the following impulsive wave in order to see potential Fibonacci levels.
levels that could be tested if price were to continue in the direction of the trend, which is why you typically want to only use these if you believe that price is going to continue beyond the impulsive wave that you're using to measure these levels. So now to measure these levels, we want to take the Fibonacci extension tool or the expansion tool if you have it available. And if you don't have either of these available, then you might need to use the Fibonacci retracement tool and you might have to.
add these levels in your settings. But starting off with the bullish impulsive wave, similar to what we did for the Fibonacci retracements, we're going to want to start off with the low and then connect the second point to the high. And then for Fibonacci expansions, we want to connect the third point back to the low and move this out to the right. And I'm going to do the same thing for the bearish impulsive wave, except the difference is that it's flipped around. So We want to start with the high and then connect to the low and then back to the high and stretch this out to the right.
What we can see here is that unlike the Fibonacci retracement tool, which gave us a bunch of Fibonacci levels in the middle of this impulsive wave, what we have over here is a bunch of Fibonacci levels that go beyond the impulsive wave. Going back to Fibonacci expansions, expansion basically is is if we were to take a general measurement of this impulsive move and we were to project it out then we basically see a projection of where price is pushing towards if the trend continues. So for example, we reached the 127.2 expansion level. So what this basically means is that price pushed 27.2% past the high of this impulsive move. And the 113.1 level means that we pushed 13.1% past the high of this impulsive move.
And the high would obviously be 100%. So what a lot of traders might use Fibonacci expansions for or Fibonacci extensions is they might use these levels as price targets for where they want to take profits within their trades, depending on which direction. taking their trend their trade in so in this example if it's a bullish impulsive wave then we can assume that a trader is is longing the market and is in a buy trade so Let's say that they got in over here at the retracement and they're looking to see where they could take profit or partial profits. Well, then they might look at the Fibonacci expansion levels.
So in this case, let's say they look at the 127.2 level. and that's where they might mark their price target as where they want to take their profits and obviously you don't want to rely on these alone so you might combine this with like supply and demand zones or another factor And you might not want to even put it right at the Fibonacci level. You might want to put it right below the level, since a lot of other traders might be looking to take profit at these Fibonacci levels. Or they might be looking to take a trade in the opposite direction. So just to be safe, you might want to put it right below this price target.
But that's basically how Fibonacci expansion levels work. And there's many more of them. There's...
They go up to the 200%, the 224, the 3.618, but typically those are more advanced Fibonacci levels for those traders that are looking to trade harmonics. And harmonics, I can make a video discussing harmonics and going over them. But in this one, I'll only focus on Fibonacci expansions and extensions. So now let's cover the Fibonacci extension, which I'll go over very quickly. And honestly, the main difference between the Fibonacci extension and the Fibonacci expansion tool.
that the third point instead of being connected back to the higher low we're going to connect it to the bottom of the corrective wave so if you recall over here for our for our bearish Fibonacci expansion. We started with the high, we connected to the low, we moved back to the high, but the difference here is that for the extension, instead of moving back to the high, we're going to move to the bottom of this corrective wave. So it's similar, but the difference is that we're connecting to the bottom of the corrective wave.
So obviously, if we were to have a deeper corrective wave, then this would connect a little bit lower if it's a bullish impulsive move. And if the... If the retracement isn't as deep, then this would connect a bit higher. And typically the most common Fibonacci extension levels would be the 38.2, the 61.8, and let's say the 161.8.
But some traders might even use the 127.2. But the same concept applies for this, where a lot of traders might look to take profit at some of these Fibonacci levels. So whether or not you use a Fibonacci expansion or the Fibonacci extension tool is all a person. preference just be sure to backtest each of these and again like i said for the most part most traders use them as take profit targets or as potential regions that could possibly be tested if price were to continue within a trend into unknown territory so that's everything i i hope i explained this quite well for you guys if there's anything that i was missing or something that you didn't understand then be sure to just drop a comment down below i hope you enjoyed this video thanks for watching