# Plotting the Fibonacci Expansion Levels

Video Transcription

Welcome to the third lesson of the Day Trading One Touch Options course. On this lesson, we will learn how to use the Fibonacci expansion levels to calculate how long the continuation wave will be.

By doing so, we will learn how to calculate the target area and the turning point of the next correction, so we will have a range and the strike price of our one touch options would have to be, inside of this range, in order for us to take it.

But let’s go ahead and learn how to use it. Now that we know how to look for a full correction zone, we need to know how to calculate the targets of the correction. The targets of the correction are the turning points of the next correction.

The meaning that the target of a corrective move are the end of the continuation move, which is the end of the next corrective move. By calculating the target of the correction, we are calculating the length of the next wave, and by knowing the length of the next wave, we know the range that the strike price of the one touch option has to be in, in order for it to be profitable to trade.

If we know the length and turn around levels in the next wave, we can trade one touch options with much more confidence. If the strike price of the one touch is outside this range, it’s unlikely that price will hit it in this move.

And of course, it’s illogical for us to trade a one touch option that has a strike price that is above or below the range that we have already calculated. And if price is too close to the target zone and we are just at the full correction area, we might not take the trade because it might not hit in time for the expiration.

Now let’s go to the charts and continue our work on the Euro/US dollar. Now this is where we left off. Remember guys, that we have already calculated the full corrective area right here, around the 35.81 level, which is also the 50 Fibonacci level or the 50% retracement of the entire move up. And that also confluences with previous support that was rejected with this double spike low.

Now what we need to know, not that we know that this is the full corrective level, what we need to do is calculate the area of the price might reverse for a new corrective move.

Remember that price works or moves in cycles or waves. This will be wave number one. This will be wave number two or the corrective wave. And we are looking for the top of wave number three. We can’t know that without using the Fibonacci expansion tool. And what we’re going to do is we’re going to draw the expansions of this move, okay. Just let me find out where . . . It’s right here.

This is the expansion levels of this move. The corrective area is in the middle or in between the 50 and the 61 level. Or the 60 and 61 retracement level. So we are going to look for a strike zone around the 161.8 Fibonacci expansion. Okay?

Now this is the squares that we used on the previous lesson to let you know which highs we were taking out in order for us to correctly assess that this was, in fact, the corrective move that we were looking for. But now we are going to use it just as strike zones of this 161.8 expansion level, and this one we will use to let you know which is the actual corrective zone.

What you need to do is first draw your Fibonacci retracement levels once we hit the full retracement zone, which is this one. We use the expansion tool, the Fibonacci expansion tools and we draw the expansion levels. Remember that if we retrace in between the 50 and the 61.8% we will be looking for a possible target area of a Fibonacci expansion 161.8. Okay?

Now that we know this, if we are right here at this area and our price is between these two areas, meaning that, if it’s not higher than 38.10 and not lower than 35.10, we can actually take the trade. Okay? As you can see, if we go candle by candle, price continues to move up until it strikes with the 161.8.

Now remember that this is for our chart and this is just an example, but this works in the one hour, the four hours, the 15 minute and whatever time frame you want to analyze price action on.

So as you can see, we have retraced it to the 50 level, in between the 50 level and the 61.8 level and we have hit the 161.8 level as a target. This is actually how you prepare in order to trade one touch options. First you look for a swing low and a swing high. If we are in an uptrend of course, a swing high and low. If we are in a downtrend, you use the Fibonacci retracement levels.

You look for a fully corrective zone and then you plug in your Fibonacci expansion levels and if the strike price is reasonably between these two zones, or these two zones here are in between this range, we can take the trade. But this is only the preparation. On the next video we will actually see how to choose the correct option to trade.