A Day Trader Takes Earnings Utilizing Fibonacci Extensions

Most traders are usually familiar with the day trading tool termed Fibonacci retracements pattern

. This is required by day traders to find reversals on their day trading charts. This pattern is used by day traders as it is a known fact that stocks are likely to retrace earlier moves principally at three levels: 38.3%, 50% and 61.8%. However, if the stock go back over a 100% of its preceding move, fibonacci extensions can be found in handy.

A day trader uses Fibonacci extensions to figure out when a trend could possibly end. In day trading, this tool is very useful because it lets the day trader know when it is best to exit a position and when to enter new ones. When a probable change in trend will take place and whether a day trader is still trading with or up against it are just 2 of the very valuable data that the Fibonacci extensions and retracements show a day trader.

Calculating fibonacci extensions is very simple. A day trader merely has to add 100% to the Fibonacci levels stated earlier to obtain the Fibonacci extension levels. Following this simple step, a day trader will have 138.2%, 150% and 161.8% standard Fibonacci extension levels. When one of these numbers pops out, a day trader may exit his position. Plotting these Fibonacci extensions on a chart are very easy these days because of technology. Employing a charting software, all he needs to do in an uptrend is click the distinguished swing low, point the arrow to the latest swing high and then on the latest swing low. In a downtrend, a day trader can simply do the opposite of these methods. After these measures, the Fibonacci extensions will automatically appear.

When it comes to day trading, Fibonacci extension levels are truly powerful tools. This tool may be used by a day trader together with candlesticks, trend lines and support-resistance lines. For more knowledge on Fibonacci extensions, try going to a day trading blog. You can take a look at charts and other tools recommended by experienced day traders. Check out other day trading blogs for a more in-depth topic on Fibonacci extension employing a more technical formula.

by: John Smith

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