Fibonacci Fan in Forex Trading

A Fibonacci fan is constructed by drawing a line from a swing low to a swing high in an uptrend (or the reverse in a downtrend). From this base, three diagonal lines are plotted using the key Fibonacci ratios: 38.2%, 50%, and 61.8%.

These diagonal lines act as support or resistance levels as the price moves forward:

• When the price bounces off a fan line, it signals the trend is intact.
• If the price breaks through the 61.8% fan line, it often means trend consolidation is starting—not necessarily a reversal.

This is a signal for traders to shift strategies, potentially favoring range-based trading tactics.

Fibonacci Arcs in Forex Trading

Fibonacci arcs are circular lines drawn from a swing high to a swing low (or vice versa), based on the same key ratios.

These arcs indicate areas where price may stall or reverse:

• If the price travels along an arc, such as the 38.2%, it suggests short-term resistance.
• Breaking below key arc levels can indicate continuation of a downtrend or start of a new leg lower.
  

Example in Action

On a downtrend chart:

1. Draw Fibonacci arcs from a recent swing high to a swing low.
2. Observe how the price reacts to the arc lines—especially 38.2%, 50%, and 61.8%.
3. Watch for breaks or bounces to plan your entries or exits.

Summary

Using Fibonacci fans and arcs gives forex traders an edge in:

• Identifying evolving support/resistance zones
• Planning better entries based on bounce or break behavior
• Adjusting strategies based on trend continuation or consolidation

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