This lesson we are going to work out the best way to take maximum profits from a position long or short. Many **traders** know how to get into a position but are often uncertain when they should get out.

In our last lesson we discussed **Fibonacci levels** and how to use these levels for **entry and stop placement**. So we have a sensible place to enter the market and a sensible place to put our stop loss now we need a logical target. Don’t worry if this sounds a little complicated it isn’t.

From the last lesson you may remember that we calculated out **retracement levels** by measuring the distance between point A and point B. All we are going to do now is add another measurement called point C to get some** fibonacci expansion ratios**

We will eventually finish up with two targets. T1 and T2. We shall discuss which one to choose later. The formula for the calculations would look like this.

T1 = .618(B-A)+C

T2 = B-A+C

Let’s assume an imaginary security called ABC.PTY. Point A shall be 189, Point B shall be 278 and point C shall be 245. It’s in an up trend and the first move (A to B) is 89 (245-189). It then ourhealthissues.com/product/levitra/ pulls back to point C. The distance between point B and point C is 33 (278-245). We can now calculate some numbers.

T1 = .618(278-189)+245 Target is 300

T2 = 278-189+245 Target is 334

The chart below is a 5-minute chart of the US dollar/ Canadian dollar (USD/CAD) as you can see A is 1.4900, B is 1.4837 and C is 1.4863. Therefore:

T1 = .618(1.4837-1.4900)+1.4863 Target is 1.4824

T2 = 1.4837-1.4900+1.4863 Target is 1.4800

In our next chart we have the 4 hour chart of the British Pound/ US dollar (GBP/USD) as you can see A is 1.5712, B is 1.5859 and C is 1.5782. Therefore:

T1 = .618(1.5859-1.5712)+1.5782 Target is 1.5873

T2 = 1.5859-1.5712+1.5782 Target is 1.5929

As I mentioned earlier there are other **expansion ratios** but these are the two I like to use.

I find it very useful is to keep an eye on the first target (T1). If you are in an up trend and T1 is below **resistance **then I would use that as a target.

If T1 is above resistance then I would probably use T2. The reverse is true for a **down trend**.

Good Trading

Best Regards

Mark McRae

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Thu, Dec 23, 2010

Basics, Fibonacci