Using Fibonacci Fans to Identify Support and Resistance

[I]This is another module in our series about how to use fibonacci analysis to identify support and resistance.[/I] [B]- Fibonacci fans work well in a trend - Fan lines can be used to identify entry points in the same direction as the trend - Potential resistance levels may trigger tighter risk control [/B] Fibonacci fans are very similar in concept to Fibonacci retracements and in many ways they are used the same way. Both are effective tools for identifying support and resistance levels, entries and exits, and stop and price target levels. Ultimately, you would try both and decide which works best for your trading style and analytical preferences. There are, however, two ways in which fans and retracements differ: - Fans are more useful when a currency is trending, because they are follow the trend diagonally rather than horizontally on the charts. - Fans will often stay valid longer than a Fibonacci retracement analysis for the same reason [B]How Fibonacci fans are constructed.[/B] The Fibonacci fan uses the same primary ratios of 38.2%, 50% and 61.8% that were discussed in earlier sections. The Fibonacci study is applied to the high and low of a trend in the same way that a Fibonacci retracement is placed. The diagonal fan lines are based on an imaginary vertical line drawn from the top to the bottom price levels of the trend. The fan lines are drawn from the bottom of the trend through the vertical line at its 38.2, 50 and 61.8% points. In the chart below you can see this how this would look if you could see those lines drawn on the chart.... For the rest of the article and a video, click here: [url]http://www.pfxglobal.com/index.php?option=com_content&task=view&id=2194&Itemid=117[/url] Fans don't work as well for analyzing a rapidly rising or falling pair, as you can see below. [IMG]http://www.pfxglobal.com/images/john/02282008fan4small.png[/IMG] But retracements would be great, as you can see here. Click the link above and learn more about fibonacci fans and fibonacci retracements. Lots more images and video in the link. [IMG]http://www.pfxglobal.com/images/john/02282008fan5small.png[/IMG]