Fibonacci Fans use Fibonacci ratios based on time and price to construct support and resistance trendlines; also, Fibonacci Fans are used to measure the speed of a trend’s movement, higher or lower.
- If prices move below a Fibonacci Fan trendline, then price is usually expected to fall further until the next Fibonacci Fan trendline level; therefore, Fibonacci Fan trendlines are expected to serve as support for uptrending markets (see: Support & Resistance).
- Likewise, in a downtrend, if price rises to a Fibonacci Fan trendline, then that trendline is expected to act as resistance; if that price is pierced, then the next Fibonacci Fan trendline higher is expected to act as resistance.
The chart below of the S&P 500 exchange traded fund (SPY) shows an uptrend that retraced to the 38.2% Fibonacci Fan:
The Fibonacci ratio is also used to predict areas of time in which price might change course; Fibonacci Time Extensions are discussed next.
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