Fibonacci Expansion is a default tool available in MetaTrader, which is also crucial for price action target.
This article will introduce the essential Fibonacci Expansion levels that you might want to use with 1–2–3 pattern trading strategies.
Once you have selected the tool in Properties, add the following levels:
Please enter some of these levels manually within the indicator properties.
The characteristics of these levels are essential for our price analysis and will add up to 1–2–3 pattern trading.
This is the first significant level of the tool. It doesn’t usually act as strong support or resistance when the price approaches it directly, but rather when the 61.8 support or resistance had already been broken (backward approach). It then transforms into a healthy S/R level.
This is considered to be a weak support or resistance level. But if the 1–2–3 pattern point 3 equals or is close to 61.8 of 1–2 retracements, FE 100 should be a healthy S/R level.
This is a level similar to 61.8 FE, with very similar characteristics.
A great S/R level, usually strong for USD crosses, where the USD is the base currency. (e.g., USD/CHF, USD/JPY, USD/CAD, USD/SGD, etc.). It is also a strong level for EUR based crosses, where the EUR is the base currency (e.g., EUR/USD, EUR/GBP, EUR/JPY, etc.).
A great S/R level that possibly marks the end of correction.
Possibly the strongest S/R level that marks the end of correction, price reversal, and change of the trend.
Simply add Fibonacci Expansion to the 1–2–3 pattern that has been formed to estimate possible price projection targets. The only correct way to do it is shown in the following example.
Stop-losses are usually placed below point 3 of the 1–2–3 chart pattern for long trades and above point 3 for short trades. However, if a trader wants to be slightly more conservative with a trade, they might opt to place a protective stop above or below point 1 of the pattern.
As always, the single most important thing out of all the things that matter in trading is proper money management. Try to prioritise your setups and do not use your capital for chasing pips where they simply do not exist.
Reserve your capital for appropriate trade setups with the 1–2–3 reversal pattern using low risk and adequate targets. For instance, 1:2 Risk: Reward is a right choice, but protect your trade with a profit stop if you are an intraday trader.
Cheers and safe trading,