Fibonacci Fan
A Fibonacci fan is a set of diagonal lines projected from a key swing point. The lines are spaced using Fibonacci ratios and are meant to outline potential support and resistance angles.
How it is drawn
- Identify a significant swing low and swing high.
- Draw a trend line between them.
- From the swing point, draw additional lines that divide the vertical distance by ratios like 0.382, 0.5, and 0.618.
Interpretation
The fan lines indicate how steep a trend can be while staying within a normal range of pullbacks. A break below a fan line can signal weakening momentum or a trend change.
Practical use
- Use fan lines as zones for pullback entries.
- Combine with volume or candle patterns for confirmation.
- Reset the fan when a new major swing forms.
Example
An uptrend forms from a swing low. Price rides the 0.382 fan line for several weeks. When price breaks below the 0.5 line, the trader reduces exposure or tightens stops.
Cautions
Fan lines are sensitive to the chosen swing points, so consistency in selection is important.
Practical checklist
- Define the time horizon for Fibonacci Fan and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Fibonacci Fan as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Fibonacci Fan, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.
Risk management notes
Risk control is essential when applying Fibonacci Fan. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.
Variations and related terms
Many traders use Fibonacci Fan alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.
Practical checklist
- Define the time horizon for Fibonacci Fan and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Fibonacci Fan as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Fibonacci Fan, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.
Risk management notes
Risk control is essential when applying Fibonacci Fan. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.
Variations and related terms
Many traders use Fibonacci Fan alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.
Practical checklist
- Define the time horizon for Fibonacci Fan and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Fibonacci Fan as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Fibonacci Fan, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.