This technical analysis tool is so amazing that it can be called a price roadmap. Like the main part of indicators, the Fibonacci fan shows the key levels, which can be support and resistance based on Fibonacci numbers, that is, the point where the price can stop its move and possibly make a correction.
Building a Fi-Fan
To build a Fibonacci fan, a trader needs to determine two extreme opposite points of the period for which the indicator needs to be plotted:
Just draw a line through these points and the charting application will automatically plot Fibonacci fan levels. The underlying Fibonacci fan levels have Fibonacci ratios of 0.382, 0.500 and 0.618.
Fibonacci Fan Support and Resistance Levels
The Fibonacci fan, like the Fibonacci levels, allows you to determine the levels of support and resistance. Most often, after a significant fall or rise, the price returns to previous levels. And in the process of such a reverse movement, it often meets resistance and support at the levels where the Fibonacci fan is located, or at levels close to it. If the price has broken through the support level, then it becomes the resistance level.
Like other technical analysis tools, the Fibonacci fan should not be used without being combined with other technical indicators that confirm possible resistance, support, or trend reversal. Other indicators will filter signals for entering the market. In addition, any indicators or oscillators of your choice can be suitable. Thanks to this systematic integrated approach, it is possible to create a fully functional trading system with already existing signal filters.
It is also impossible not to notice that the Fibonacci fan is one of the types of trading by levels. This type of trading is convenient because it allows you to trade during a trend in the market, or rather, when one trend is replaced by another. In the case of a flat on the market, this method is not entirely suitable, since it uses breakout methods to receive trading signals for making deals.
Speaking about how reliable this method is, it should be borne in mind that it is rather difficult to verify it. When using the Fibonacci fan, everything depends on the skills, experience and skill of the trader who uses this trading method. And it is for this reason that such systems do not automate, since they are intuitive.