What is Fib Speed Resistance Fan? How to use it?A Fibonacci fan is a technical analysis charting technique that uses the Fibonacci ratio to predict support and resistance levels graphically.
The Fibonacci ratio can be used to describe proportions in everything from nature's smallest building blocks, such as atoms, to the universe's most advanced patterns, such as unimaginably large celestial bodies. Nature relies on this innate proportion to maintain balance, but the financial markets appear to follow suit.
Traders can use the Fibonacci fan lines to predict key points of resistance or support where price trends may reverse. Once a trader has identified patterns in a chart, he or she can use those patterns to forecast future price movements as well as future levels of support and resistance. The predictions are used by traders to time their trades.
For both the price and time axes of charts, technical analyses based on Fibonacci ratios are available. Retracements can also be used by analysts to generate arcs or fans on arithmetic or logarithmic scales. Nobody seems to know whether these tools work because stock markets follow a natural pattern or because many investors use Fibonacci ratios to predict price movements, causing them to self-fulfill. In any case, key support and resistance levels at 61.8 percent tend to occur frequently on both uptrends and downtrends.
Simply find the proportion of one number in the series to its neighbors to derive the three key ratios commonly used in technical analysis based on the Fibonacci series. Adjacent numbers produce the inverse of phi, or 0.618, corresponding to a 61.8 percent retracement level. Numbers two positions apart in the sequence produce a ratio of 38.2 percent, while numbers three positions apart produce a ratio of 23.6 percent.
Resistance to Speed Fan lines can also be used to represent support or resistance lines. Price frequently remains above the higher speed line during an upswing. When this line is breached, prices often fall to the lower speed line, which often becomes the support level. If prices fall below the higher speed line, then climb to the lower speed line, the lower speed line becomes the resistance level. Breaking a lower speedline in a downtrend suggests a likely rise or rally to a higher speedline. If the line is broken above, the rally may continue to the top of the previous trend (or the underlying trend line).
