Fibonacci fan as an alternative to classic levels
Everything in the world is interconnected. The relationship of proportions in nature was determined in ancient times, when the ratio between the sizes of everything that exists in nature was analyzed. The found pattern found its essence in the mathematical model of numerical series. If each of them divide each subsequent member of the numerical series by the previous one, then a number close to 1.618 is obtained, called the “Golden Section”.
The resulting regularity of the number series made it possible to build the so-called levels, which were also applicable in Forex. These levels are called key levels, because next to them the probability of a trend reversal is the highest, or, on the contrary, an almost guaranteed breakout in the main direction. It is customary to divide levels into impulse and corrective levels. Impulse – levels from which a strong movement begins. Corrective – levels at which movement slows down. The Fibonacci fan is a non-standard interpretation of classic levels that allows you to evaluate and predict the speed of an upward and downward trend.
Fibonacci fan: the principle of construction and interpretation of signals
Classic levels are horizontal. The Fibonacci fan is a tool from the corresponding group of indicators, built on the principle of the “Golden Section”. It represents several rays that diverge from one point. Ray construction principle:
- In a growing market, rays are drawn from the minimum to the maximum point of the trend.
- In a falling market, rays are drawn from the minimum to the maximum point of the trend.
The Fibonacci Fan works best in volatile markets where there is frequent trend reversal with strong volumes. For example, at the time of publication of news (statistics). It is established after the first wave passes and the correction begins. Fan beams are resistance and support levels superimposed at an angle, from which a directional trend can rebound. The price areas near the rays are potential end points of the correction.
The interpretation of signals in the Fibonacci fan is similar to classical levels. 38.2% is the weakest potential correction level. If the price breaks through it (which happens often), then a correction should be expected at around 50% or 61.8%. If the correction ends at 38.2%, this indicates a strong underlying price movement in the original direction. Correction at the 61.8% level – the end of the main movement with a possible transition to a flat.
In the basic version of the indicator “Fibonacci Fan” has standard rays, which are plotted according to the main averaged levels. The instrument settings imply the addition of additional levels (any), but is it worth cluttering the chart? As practice shows, attempts to select unique levels on a single currency pair often end in loss. The market is static and individual levels are volatile.
An interesting combination can be provided by a combination of the Fibonacci fan and the corresponding horizontal levels, the intersection with which is an increasing signal.
The indicator is basic and included in most trading platforms. If for some reason you did not find the indicator, write about it in the comments and we will show you where you can download it.