Fibonacci Fan
Tue, Apr 15Fibonacci fans consist of trendlines that originate from a single point and are spaced apart based on Fibonacci ratios. They share a fundamental concept with Fibonacci retracements, which utilize Fibonacci ratios to forecast future support and resistance levels.
During an uptrend, it is recommended to draw the main trendline from the lowest point to the highest point, positioning the retracement lines below it. These lines may indicate potential support levels. In contrast, during a downtrend, the fan is drawn from the highest point to the lowest point, with the retracement lines appearing above the main trendline, acting as potential resistance levels.
The name "Fibonacci fans" comes from the fan-like shape created by the three trendlines displayed. These fans are constructed using significant highs or lows in the market. The three Fibonacci fans extend into the future with slopes at 38.2%, 50%, and 61.8%, although additional levels can also be utilized. As daily prices move past these three fans, predictions about future price movements are made based on the presence of price resistance or support at these intersection points. If prices stabilize at a fan line, it indicates support; if they swiftly move through the fan line, support will not be observed until the next fan line is reached.
Fibonacci fans rank among the four most widely used Fibonacci studies for predicting market support and resistance levels. To create Fibonacci fans, one must first identify the market's high and low points. An invisible vertical line is then drawn from the high price level to the low price level at the far right, regardless of whether it is a high or low.
Next, three lines are drawn from the leftmost point through the invisible vertical line, intersecting it at 38.2%, 50%, and 61.8% of the total distance. These classic Fibonacci percentages can be supplemented with other Fibonacci percentages as well. The three Fibonacci fan lines forecast significant support and resistance levels for the market in the near future.
The Fibonacci fan also estimates the market's range over a short period, as prices typically "bounce" between the lowest and highest of the three Fibonacci fan lines, often hovering or rebounding from the 50% line in the middle of the projection. Many traders also combine Fibonacci fans with Fibonacci arcs.
Both Fibonacci studies can be plotted on the same chart, and the points where the projections intersect are regarded as particularly strong support or resistance levels. For fans, an invisible vertical line is drawn through the second extreme point in a price movement, and trend lines are created from the first extreme point to intersect the invisible vertical line at the 38.2%, 50%, and 61.8% levels.
Similar to arcs, the trend lines from the "fan" of three new trend lines will project into future points on the graph, indicating where support or resistance levels are likely to emerge.
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