Having had a look at speed resistance lines in forex charts – their purpose as an indicator being to provide information on possible levels of support/resistance in a retracement following a trend and also the rate of retracement – we probably ought to check out Fibonacci fans, similar method, looking to supply a similar answer, given an initial trend….
A picture being worth a 1000 words etc. here’s the deal on a real chart.
Having found a trend line, the (here) 2 outer fan lines are drawn from the origin to intersect the perpendicular of the peak at the 2 Fibonacci retracement levels, 0.382 and 0.618, or 38.2%, 61.8% on the chart. (If you’re not up on Fibonacci calculations the background is here – Fibonacci retracement). There’s a 3rd fanline (here, black) at the secondary Fibonacci root 0.500.
The interpretation is simple – a price finds (trailing) support/resistance at the fan lines. It should/may bounce between these 2 containments for as long as the trend continues.
Naturally, the use of Fibonacci fans rest heavily on the principles of Fibonacci retracement in general – if you don’t entirely buy into this as a viable forex technique when taken out of the classroom – as I for one, do not – their use is, well, dubious… but, there’s room in this world – you’re always encouraged to think differently…
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