Next, let us discuss ‘Fibonacci Fans’
Fibonacci fans use Fibonacci ratios as the base to find potential support and resistance levels within a trend channel. It is primarily used for analyzing trends. Like other Fibonacci tools, Fibonacci Fans are drawn from the swing low to swing high. The same Fibonacci ratios of 38.2, 50 and 61.8% retracement trend lines are placed on the chart. These trend lines can be then used to find support and resistance areas depending upon the trend.
Fan lines drawn by the indicator indicate “zones” where support or resistance is likely to occur.
In order to draw a Fibonacci fan for a stock in uptrend we need to connect the swing low with the swing high. Fibonacci fans get plotted on the chart showing possible areas of support.
Fibonacci Fans for a stock in uptrend:
As you can see on the chart the price bounced from the fan line, taking support at 38.2% trend line.
Similarly, In order to plot Fibonacci fans for a stock in downtrend, we need to connect the swing high with the swing low. The required Fibonacci fan levels get plotted on the chart showing possible areas of resistance for the price.
Fibonacci fans for a stock in downtrend: