What is Fibonacci Fan?

A Fibonacci Fan is a technical analysis tool representing areas of support and resistance based on the Fibonacci sequence. The tool is used to identify potential price reversal points within a financial market.

How Does Fibonacci Fan Work?

The Fibonacci Fan consists of three trendlines that are drawn from a specific high or low point on a price chart. These trendlines are drawn at specific angles based on key Fibonacci ratios, typically 38.2%, 50%, and 61.8%.

These angles represent potential areas of support and resistance that could influence price movements in the future. Traders use these levels to make decisions on buying and selling assets.

How to Use Fibonacci Fan in Trading?

To use Fibonacci Fan in trading, traders identify a significant high or low point on a price chart and draw the three trendlines at the specified angles. The intersection of these trendlines can help traders identify potential entry and exit points in the market.

Traders may also use Fibonacci Fan in conjunction with other technical analysis tools to confirm signals and make more informed trading decisions.

Limitations of Fibonacci Fan

While Fibonacci Fan can be a useful tool for identifying potential support and resistance levels, it is not foolproof. Market conditions can change rapidly, and price movements may not always adhere to the levels indicated by the tool.

Traders should always use Fibonacci Fan in conjunction with other forms of analysis and risk management strategies to mitigate potential losses.