What Is The Trend Based Fibonacci Extension?
TBFEs (Trend Based Fibonacci Extensions) are used widely among traders, with their primary purpose to find support and resistance levels. The TBFE tool works through the use of the Fibonacci ratio.
Fibonacci’s ratio is devised from the Fibonacci sequence:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34 etc.
Each number is the total of the two previous numbers. The Fibonacci ratios are then found by dividing numbers across the series. These calculations then leave us with the ratios used in the TBFE and Fibonacci retracement tool.
0, 0.236, 0.382, 0.5, 0.618, 0.786, 1, 1.618, 2.618
Certain numbers within the TBFE are not a part of the Fibonacci ratio as shown below:
0 – this number is used to draw the start point with the TBFE
0.5 – widely used number to show the halfway point, can show the change in sentiment from bulls to bears or vice-versa
1 – used to draw to top of a Fibonacci retracement; it is also included in the TBFE as is it seen as an important numerical value
How To Draw The Trend Based Fibonacci Extension
Step 1 – Firstly, to find the tool we want to select this button (the TBFE draw button).
Step 2 – Now we want to identify two corresponding trends. This can be done intuitively, or through using the trend line tool as shown below.
TBFE trend identification
Note: The longer you trade / work on charts, the easier trend identification will become!
Step 3 – Now that you have identified the two trends, you need to select the TBFE and click three times:
- click one, select the wick from the initial trend point
- click two, select the wick from the end of the initial trend
- click three, select the wick from the end of the secondary trend
Below we can see an example of this.
1,2,3 TBFE example
Now that the TBFE has been drawn, it should look similar to what is shown below.
Step 4 – The final TBFE stage is to extend the TBFE lines produced. This is simple, the way in which this is done is firstly to select the 0 line and drag the TBFE across your screen, while keeping the points of contact the same.
Below we can see an example of extending the TBFE.
TBFE drawing complete
Trend Based Fibonacci Extension Conclusion
Now you have drawn your TBFE correctly! With the TBFE indicator drawn properly, it is now displaying both support and resistance for the cryptocurrency you are looking at. The TBFE provides both support and resistance is demonstrated below.
BTC/USD TBFE S&R
From here through using trend based – Fib extensions alongside other indicators / strategies we can produce cryptocurrency paths.
BTC/USD TBFE path
All in all the Trend Based Fibonacci Extension is an easy to draw TA tool which provides accurate support resistance. It is also extremely good at providing targets for cryptocurrencies at all-time highs (ATHs).
Another indicator which is good at doing this are PPs.
Learn more about PPs.