Technical Analysis, Charts Drawings:
Fibonacci Fan is analytical drawing tool that is based on the market by a user trend line and the series of Fibonacci Ratios (percentages) in the same way as Fibonacci Retracements. As a rule, a trend line is drawn through the major top (resistance) and major bottom (support) points. Then the vertical distance between these two points is divided by Fibonacci Ratios: 23.6%, 38.2%, 50.0%, 61.8% and 76.4%. Next, the "Fan" lines are draw from the base point (the left point of the trend line) through the points that represent Fibonacci Ratios on the right side of the trend line.
As with most Fibonacci drawings in technical analysis, the Fan is used to identify potential support and resistance levels in the near future. The main principle of this analysis is the assumption that the price trend is vulnerable to a change in its trend when it moves close to the Fan's lines. If the price drops below, or moves above, a Fan's line, then the price is expected to trend to the next Fan's line where it will become vulnerable to a change in its trend again.
The Fibonacci Fan is also used to predict short-term price movements, by assuming that price tends to move in the short term between 38.2% and 61.8% of Fan's line by occasionally bouncing from the 50% line. In technical analysis, the Fibonacci Fan also is often used in junction with other Fibonacci drawings, such as Fibonacci Arcs, Retracements and Timelines.
The chart below of the NASDAQ 100 index gives an example of a Fibonacci Fan:
Chart 1: NASDAQ 100 chart with Fibonacci Arcs
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