Fibonacci Number and Ratio Analysis
Figure 10.64, we see a situation where the first peak B exceeds peak F, a two‐leg
formation spanning from point C to point F. This makes AB the largest range. In
this instance, we calculated the retracement levels for AB, CF, and EF, as these
ranges satisfy the general rule. However, we do not calculate the retracement lev-
els for BC, CD, and DE. Note that if point B were below point F, then we would
not consider its Fibonacci retracement levels.
Refer to Figure 10.65. The largest range is AD. Our area of observation spans
from point A to the current price. Applying the general rule to the complex formation,
the leftmost range AB does not engulf all subsequent ranges, and hence the Fibonacci
retracements for that range are not drawn. The next range, BC, also does not engulf
all subsequent ranges, and hence the Fibonacci retracements for that range are also
not drawn. The following range AD does engulf all subsequent ranges, and hence the
Fibonacci retracements for range AD are drawn. The range CD also engulfs all subse-
quent ranges, and therefore the Fibonacci retracements for CD are drawn. In similar
fashion, the Fibonacci retracements for DE and EF are drawn. In short, Fibonacci
retracement levels are only drawn for ranges CD, DE, EF, and AD, as they all satisfy
the general rule. The practitioner may now begin the task of identifying any significant
Fibonacci clusters and any other overlay indicator–based supportive and resistive con-
fluences. (Retracement levels for DE are not displayed for the sake of visual clarity.)10.17 Fibonacci Fan Lines
Fibonacci fan lines track the amount and degree of reversal in price. Fan lines are
in essence merely trendlines and are therefore to be treated as barriers to price,
representing either support or resistance. They are traded in the same mannerFigure 10.64 Fibonacci Downside Retracement Levels in a Complex Formation for
Ranges AB, CF, and EF.