Understand & Use Fibonacci Ratio’s Understand & Use Fibonacci Ratio’s Part.4

Fib Fans
by Sunil Mangwani

• The Fibonacci fans are a charting technique consisting of diagonal lines that
use Fibonacci ratios to help identify key levels of support and resistance.
• Fibonacci fans are created by first drawing a trend line through two points
(usually the high and low), and then by dividing the vertical distance between
the two points by the key Fibonacci ratios.
• The result of these divisions each represents a point within the vertical
distance. The 'fan' lines are then created by drawing a line from the leftmost
point to each of the three representing a Fibonacci ratio.

Plotting Fib fans Plotting Fib fans
• Fib Fans give strong indications of direction. They act as effective
filters for a trend. It is considered, that these lines will serve as
levels of support/resistance for a developing pull-back or a new
trend.
• The fans that we use have 5 levels marked by fib levels – 38.2%;
50.0%; 61.8%; 76.4% & 88.6%. The fans thus create 4 channels
between the 5 fib fan levels.
• Once you have plotted fib fans, wait for price to enter the 1st
channel. A retracement gets confirmed only if price enters the first
fan channel. However, at each fan level, one must observe price
action to determine if a reversal will occur.
• For a valid entry into a fan level, one must have a candle close
within the fan channel. (Candle close of the same time frame that
one is referring to)
• A high probability of reversal is considered when we have a strong
candlestick pattern (like a doji) forming on a fib fan level

Fib fans – the 0.886 level Fib fans – the 0.886 level
• Of all the ratios, the 88.6 level holds a lot of importance. This is
the level, from where price has a very high probability of
retracement.
• We can thus call the 88.6 fan fib level as “The Barrier Level on
Fib Fans.” It is a level of high probability for trend change.
• Once price closes beyond 88.6, there is a high probability the
trend has reversed. Fib Levels are Pause Points for Price.
• If price breaks a fan level, it has a very high probability of going
to the next fan level. For example, if price has closed above the
76.4 fan line, the probability of it going to the 88.6 fan line is very
high. And if fan line holds, then we could have a reversal in
place.

Fib Fans Fib Fans
Ideal situation to use in –
• 1.) To determine the future levels of support/resistance (in case of an up
trend)
• Once the fans have been plotted from a swing low to a swing high in an
existing up trend, one should leave the lines since they subsequently
form the levels for resistance, which would indicate a change of trend to
the downside & confirm certain support levels.
www.fibforex123.com www.fibforex123.com
Fib Fans Fib Fans
Future levels of support / resistance

Fib Fans Fib Fans
Ideal situation to use in –
2.) For price in an existing trend – to determine the extent of a pullback/
retracement (in case of an up trend)
• We can use the fans to determine the extent of the pull-back, and
whether price should continue with the existing up trend or form a
reversal.
• In case of an up trend, we plot the Fib fans on the existing up trend
from the swing low to the swing high (from where price started the
pull-back down)
• If the pull-back is held within the Fib fans - and specifically as
mentioned before - if price does not break the 88.6 fan level or
finds support at that level, then the indication is that price should
resume the up move again.

Ideal situation to use in –
2.) For price in an existing trend – to determine the extent of a pullback/
retracement (in case of an up trend)
• As a thumb rule, the confirmation for the resumption of the trend
would be when price breaks into the 2nd channel (above 61.8 level)
• Hence the break of the 61.8 level should be considered to be the
entry, with the stop below the 88.6 level.
• The assumption is that if price has broken the 61.8 level, then it
has gathered sufficient momentum to resume the move in the
direction of the existing trend.
• Hence, the probability of price moving back down to the 88.6 level
is quite remote…….which becomes the correct technical level to
place the stop.


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