Using Fibonacci Extensions in Spread Betting

By mosesbet · Filed Under Spread Betting Comments Off on Using Fibonacci Extensions in Spread Betting 

The Fibonacci Extension Levels (38.2%, 61.8%, 100%, 138.2% and 161.8%) can be used to make a profit on both upward and downward trends.

On an upwards trend, click the on the last swing low and drag the mouse up to the nearest swing high just like in Fibonacci Retracement Levels.  The Fibonacci Extension will show the ratio and prices at each of the main Fibonacci Extension levels.

By spotting where the most resistance is at each of these levels you can predict when the market is going to move back up or down again.

For example, in screenshot on the right you can see that the market had some strong resistance at point C which is the 61.8% level.  We could then use the Fibonacci Extension levels to predict the next resistance level where the market will stop at.  We have a choice of setting our limit order at the 50% or 38.2% (future resistance levels).

As you can see, we can use the Fibonacci Extension levels to set orders for going long or short depending on the trend of the market.  If we’re going short then we simply find the resistance level and study the possible support levels using our Fibonacci Extension.  We can also use the information from Fibonacci Extension Levels to find good places to put our limits and stop-losses at.

Using Fibonacci Extensions to Find Limit and Stop-Loss Orders

When you’re going long then the best place to put you stop-loss is just below the support level.  It’s important to put it below and not above the support level because otherwise it might close the trade too early.  You need to give yourself enough room with stop-losses to capture long profits.  Normally you can place you’re your stop-loss a few points below the support level.

If you’re going short then you want to put your limit just above the resistance levels.  This allows you to take advantage of the market as it swings downwards without closing too early in case it breaks through the resistance for a period small time.

Finally, if you’re main strategy involves swing trading (i.e. going long for weeks or months) then you’re better off setting your stop-loss or limit at the last swing high or swing low.  You need more room and flexibility for going long compared to day traders or scalpers.

Conclusion on Using Fibonacci Extensions

The advantage of using Fibonacci Extensions are that they help you to find future support/resistance levels using candle-stick data. The ratios also help you find better spots for placing your limit and stop-losses at.  The fact that so many traders use Fibonacci ratios in their strategy is one of the reasons why the support/resistance levels re-affirm themselves so much.

The downside to using Fibonacci Extensions is that it doesn’t do all of the work for you and there are no guarantees.  First of all, you need to choose the right Fibonacci Extension level (38.2%, 61.8% etc) since the market could climb or fall to any of theses.

Secondly, there’s no guarantee that the price won’t break through these levels.  Placing a stop-loss helps to limit the risks on your trade but it doesn’t mean you can’t still lose money (especially on volatile markets with slippage).

Finally, traders will be using different time parameters for candle-stick data which will effect which swing lows and highs are used. This in turn can lead to unpredictable price movements and different conclusions on which direction the markets will move.

 

 

 

 

 

 

 

 

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