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Example of how to use the Trend-Based Fib Extension tool
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There was a question about how to select the selection point when using the Trend-Based Fib Extension tool, so I will take the time to explain the method I use.
Since it is my method, it may be different from your method.
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Before that, I will explain the difference from the general Fibonacci retracement tool.
The Fibonacci retracement tool uses the Fibonacci ratio as the ratio to be retracement within the selected range.
Therefore, the low and high points are likely to be the selection points.
The reason I say it is likely is because the lowest and highest points are different depending on which time frame chart it was drawn on.
Therefore, in order to use a chart tool that specifies a selection point like this, you must basically understand the arrangement of candles.
If you understand the arrangement of candles, you can draw the support and resistance points that make up it and determine the importance of those support and resistance points.
The HA-MS indicator that I am using is a more objective version of this.
Unlike the published HA-MS indicator, several have been added.
I do not plan to disclose the formulas of these added indicators yet.
However, if you share my ideas, you can use them normally at any time.
The selection point for using the current Fibonacci retracement tool is the point that the fingers are pointing to.
In other words, the 1st finger is the low point, and the 2nd finger is the high point.
One question may arise here.
Why is it the position of the 1st finger?
The reason is that it is the starting point of the current wave.
Therefore, you can find out the retracement ratio in the current rising wave.
In fact, it is not recommended to use the Fibonacci ratio as support and resistance.
This is because it is better to use the Fibonacci ratio to check how much wave is being reached and how much movement is being shown in chart analysis.
However, the Fibonacci ratio can be usefully used when the ATH or ATL is updated.
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If the Fibonacci Retracement tool was a chart tool that found out the retracement ratio in the current wave, the Trend-Based Fib Extension tool can be said to be a chart tool that found out the extension ratio of the wave.
Therefore, while the Fibonacci Retracement tool requires you to specify two selection points, the Trend-Based Fib Extension tool requires you to specify three selection points.
That's how important it is to understand the arrangement of the candles.
The chart above is an example of drawing to find out the extension ratio of an uptrend
The chart above is an example of drawing to find out the extension ratio of a downtrend
Do you understand how the selection points are specified by looking at the example chart?
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The chart above is the chart when the 1st finger point is selected.
The chart above is the chart when the 1-1 hand point is selected.
When drawing on a lower time frame chart, you should be careful about which point to select when the arrangement of the candles is ambiguous.
Examples include the 1st finger and the 1-1 finger.
It may be difficult to select 1-1 and 1 depending on whether they are interpreted as small waves or not.
The lower the time frame chart, the more difficult this selection becomes.
Therefore, it is recommended to draw on a higher time frame chart if possible.
The reason is that the Fibonacci ratio is a chart tool used to analyze charts.
In other words, it is not drawn for trading.
In order to trade, you trade based on whether there is support or resistance at the support and resistance points drawn on the 1M, 1W, and 1D charts.
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Thank you for reading to the end.
I wish you successful trading.
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