Fibonacci fan is so astonishing that it can be called a road map of price. As the most part of indicators, Fibonacci fan shows key levels, which can perform as support or resistance levels on the basis of Fibonacci prices, in other words, the very point, where price can stop and get possible correction.
Building Fibonacci fan
To build Fibonacci fan, a trader needs to define two extreme opposite points of the time period requiring indicator:
- Bottom Low
- Top High
By mere laying line through those points you will let the application automatically build levels of Fibonacci fan. Basic levels have ratio 0,382, 0,500 and 0,618 as shown at the picture below.
Support and resistance levels on Fibonacci Fan
Like Fibonacci levels, Fibonacci fan allows to define support and resistance levels. More often significant fall-down or growth make the price return to the previous levels. Over the correction, the price meets resistance and support on the levels where Fi fan is located or nearby. In case the price breaks through support level, it moves to the level of resistance.
As any other tool of technical analysis, it is not recommended to use Fibonacci fan without combination with another technical indicators, which can confirm possible resistance, support or trend change. Other indicators can serve as filters of alerts for entering the market. Any indicators or oscillator suiting you can act as supplementary. Thanks to complex approach, one can build an operable trading system with already existing filters for alerts.
It cannot go unnoticed that Fi fan represents one of the types of level-based trading. This type of trading is comfortable because it allows trading in the course of market tendency, to be more precise, when one trend is changed to another. During market flat, this method will not be as appropriate because it uses breaking ways of getting trading alerts.
Finding about certainty of this method is rather difficult. Everything depends on a trader's skills and experience. Therefore such systems are not automated, they have intuitive character.
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