Fibonacci Fans are a charting technique that combines traditional Fibonacci lines and Fibonacci channels. They use the Fibonacci levels in a radial way, drawing trendlines from a point of primary importance, such as a low or peak, to identify future points of retracement or extension.
Some investors believe that, like many naturally occurring systems in nature, market behavior will exhibit some fractal-like forms that can be measured with Fibonacci sequence numbers and the Golden Ratio. Modern computing power has uncovered plentiful examples of the Golden Ratio in nature, from Nautilus shells to musical harmonics, as well as mathematical fractal patterns. Fibonacci numbers are related to the study of chaos theory, which seeks to find order in complex systems. Since the markets have so many variables, but no lack of data, they are an excellent place to search for Fibonacci patterns.
The Fibonacci lines used in trading use the proportion of the Golden Ratio (61.8% and 161.8%) as well as second (38.2%) degree separations and even third degrees or roots of the above. In general, extensions are the values over 100% and retracements are values under 100%.
Fibonacci fans are drawn using a peak or a trough as the radial origin for the fan lines. Fan lines are drawn through a normal set of vertically arranged retracement levels at the next peak or trough, after which they continue out like a vectors or rays.
Fan lines end up functioning a little like Fibonacci channel lines, since they continue out to the right and upward or downward, but since they aren’t parallel lines they serve a slightly different purpose. Analysts use these fan lines as reference points for reversals, support, and resistance for a period of time, as long as they stay around the ballpark of the price.
The use of Fibonacci fans in trading is still in its early stages, but ever-growing computing power available to traders increases their ability to find the common threads that will make this investment theory more usable, accurate, and reliable. These include artificial intelligence services from Tickeron, which provide traders with powerful ways to evaluate trade ideas, analyze signals, and provide key confirmation to help investors make rational, emotionless, and effective trading decisions.
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