the hAnDbook oF teChnICAl AnAlysIsas any trendline. One important characteristic of Fibonacci fan lines is that they
are comprised of three trendlines, all plotted in accordance with the three main
Fibonacci retracement ratios—38.2 percent, 50.0 percent, and 61.8 percent. Fan
lines may be rising or declining. Rising fan lines are sometimes referred to as ac-
celerating fan lines and declining fan lines as decelerating fan lines. Rising fan
lines initially represent areas of resistance, turning into support once breached. In
similar fashion, declining fan lines initially represent areas of support, turning into
resistance once breached. Violation of the third fan line is normally considered
strong evidence of potential continuation of a reversal.
To construct Fibonacci declining fan lines, refer to Figure 10.66. We first need
to identify a significant peak and trough from which to plot the fan lines. Draw
a vertical line from the peak to the price level at point A, the base. Calculate the
three retracement‐ratio values for the range AB, and then mark off the points of
intersection between the vertical measuring line and the three retracement levels
(points 1, 2, and 3). Plot three trendlines connecting the base to each intersect
point. The same procedure applies for rising fan lines.
We see price finding support at the first and third fan lines. We also observe
price finding resistance at the second fan line at point X.
In Figure 10.67, our base point is at point A. The vertical measuring line ex-
tends down from point C (not shown). We observe that price finds support at the
first declining fan line at point D, which lies around a previous support level. We
also see unusually large volume at point D, well above its 20‐day moving average.
Price subsequently reverses rapidly to the upside after testing the first fan line. It is
important that all fan line tests are supported by a confluence of bullish or bear-
ish indications. In this example, the prior support and surging volume added to
the bullishness of the fan line test. Note that the area of application is after point
Figure 10.65 Fibonacci Downside Retracement Levels in a Complex Formation for
Ranges AD, CD, DE, and EF.