Now, supposedly, we have entered a trade using entry levels based on fib retracement, how do we know when to sell? To answer this question, we can utilize the Fibonacci Extension tool.
**How to: You will need 3 points to draw a fib extension. You can obtain these 3 points by identifying wave 1 and 2. -->Define wave 1-2 -->Set begging of wave 1 as first point. -->Set end of wave one as second point. -->Set end of wave 2 as third point. --------------------------------------------------------------------------------------- *We are looking at a 4 hour chart of EBST/BTC* Okay, so for this eBoost trade example example. I have entered a trade at around 3200 level. How do I know where to sell?
For now, please ignore all the fibonacci tools and other annotations. Please focus on the candle sticks only: count wave 1-2-3-4-5 (They are labelled in blue text. The beginning of wave 1 is marked with an up arrow)
**You should ONLY move on if you can identify the 5 waves comfortably***
Now, we can start investigating the tools. There are four tools you should familiarize yourself with on this chart. You can investigate them in the following order: (They are labelled by balloons) a) fib retracement for wave 1 - used to find entry to LONG wave 3 b) fib retracement for wave 3 - used to find entry to LONG wave 5
c) fib retracement for the entire set of wave 1-2-3-4-5 (**ie. wave 1' - Since 1-2-3-4-5 can be viewed as subwaves of a larger leg 1' **) -->We can use (c) to find entry to LONG wave 3'
d) fib EXTENSION of wave 1-2: used to find sell targets. The targets are connected fib. extension tool by the green boxes. ---------------------------------------------------------------------------------------
And there you have it, a 2-part simple introduction to using Fibonacci Retracement & Extension tools to find entry and target of a trade.