It is also wise to include the Fibonacci extension levels as part of your exit plan simply because these are levels that many other traders look to in order to take their profit from, so very often as price comes off a retracement level and hits an extension level , you will see a strong reaction as traders start taking profits. They also give you the potential to trade with large Risk/Reward Ratio’s, which is always good.
Here is an example of how the trades play out using extensions as exits:
So in summary, when using Fibonacci in your trading, it’s vital to always have a confluence whether it’s at your retracement level when looking for an entry or in factors that help you establish the direction of the market.
The most critical thing to do is choose a way of spotting your Fibonacci set ups and then follow that method consistently. This information won’t get you every good trade; rather it will just make sure that all the trades you do get into are of a very high quality.
Next: Pivot Points