Gann Fan

Lines of Gann Fan are built at different angles from an important base or peak at the price chart. The trend line of 1х1 was considered by Gann the most important. If the price curve is located above this line, it is the indication of the bull market, if it is below this line it is that of the bear market. Gann thought that the ray of 1x1 is a powerful support line when the trend is ascending, and he considered the breaking this line as an important turn signal. Gann emphasized the following nine basic angles, the angle of 1x1 being the most important of all:

• 1х8 — 82.5 degree
• 1х4 — 75 degree
• 1х3 — 71.25 degree
• 1х2 — 63.75 degree
• 1х1 — 45 degree
• 2х1 — 26.25 degree
• 3х1 — 18.75 degree
• 4х1 — 15 degree
• 8х1 — 7.5 degree

The considered ratios of price and time increments to have corresponding angles of slope in degrees, X and Y axes must have the same scales. It means that a unit interval on X axis (i.e., hour, day, week, month) must correspond with the unit interval on Y axis. The simplest method of chart calibration consists in checking the angle of slope of the ray of 1х1: it must make 45 degrees.

Gann noted that each of the above-listed rays can serve as support or resistance depending on the price trend direction. For example, ray of 1x1 is usually the most important support line when the trend is ascending. If prices fall below 1х1 line, it means the trend turns. According to Gann, prices should then sink down to the next trend line (in this case, it is the ray of 2х1). In other words, if one of rays is broken, the price consolidation should be expected to occur near the next ray.

Fibonacci Retracement

The Fibonacci Retracement is probably the most heavily used Fibonacci tool in the toolset. You will find Fibonacci Retracements as a solid tool in identifying key support and resistance areas.

If prices have fallen from a recent swing high down to a swing low, the expectation is that price should retrace distance, high to low, by a ratio of the Fibonacci sequence. .

You can use Fibonacci retracements and extension from a tick chart through a daily, monthly and weekly.  Literally any time frame

It is important to note, the larger price move from swing high to swing low, the more accurate the retracement projections. Identification and selection of the correct swing points are keys to success.

While there are many variations of the ratio set, simple is better, lets focus on four major retracement levels.

• 23.6% -- The shallowest of the retracements. In very strong trending markets price typically quickly bounces in the area of this ratio.

• 38.2% --- This is the first line of defense of the current trend. Breaking this level starts to erode the underlying trend. 

• 50% -- The neutral point of any retracement. This is the critical tipping point.

• 61.8% -- retracing to this typically signals a breakdown in the trend.

• 100% -- Matching the move

In this section we will also show examples of how potential opportunities form when price retraces beyond 100% by following another set of Fibonacci ratios:

• 138.2%
• 161.8%
• 200%

Notice in each case we have simply added 100% to the standard ratio set. I use this set of retracements on a daily basis, from 23.6% all the way to 200% and sometimes 300% For my style of trading I find 38.2%, 50% and 61.8% quite reliable.I use the other primarily as confirmation levels.

So lets take a look at some examples of Fibonacci Retracements in use. 

Example 1:
Take the example below. The EUR/USD had risen from 1.3360 to 1.4278. The next day the EURUSD failed to make a new high and the potential swing point was in place. So I using swing points I placed a Fibonacci retracement on my chart.

The trend was obviously very strong and the first retracement to the 23.6% level was met with a violent change in direction. You can see the dip below the 23.6% level and the sudden reversal. While there are multiple entry methods, the most conservative would be to wait until the level is penetrated and price establishes itself above that level and enter on the open of the next bar as shown.

With the right money management, you can see in this example this could have been a serious winner.

Once you understand the method you can find countless examples. Every market, FOREX, Equities and Futures each exhibit these patterns to some degree. 

Example 2:
Lets look at another example using the USDCAD. You can see in this example there are multiple entry points for both trend and countertrend trades.

Lets zoom in and look at the area highlighted in blue. Fibonacci Ratios work on virtually any size price swing.

The chart below shows the Fibonacci Retracement applied to the smaller price swing.

The blue ellipses show the high potential entry points. Notice, in each of these cases you could have entered the market with a relatively tight stop loss with high reward potential.

Ok, we have shown some examples of well behaved price action. What happens if price retraces 100%?  How far can it go beyond this point? Fibonacci ratios provide some clues to answering this question and finding low risk entry points.

Example 3:
The example below shows the GBPUSD making a bottom and bouncing back. And multiple entry points from the same set Fibonacci  Retracement levels.

Of note are the high potential entry points at 38.2%, 50% and 61.8%. Each of these could have been entry points with solid profit potential. However, notice after the initial breakout above 100%, there were other opportunities to get in the trade. Ultimately price jumped to the 138% point before backtracking.

This example shows yet another way to use Fibonacci Retracements. This example shows why it is valuable to identify potential levels above and beyond the initial 100% retracement.

Retracements are the cornerstone of Fibonacci theory as it applies to the financial markets. Hopefully these examples have provided guidance from which to draw your own retracements and expand your trading toolset.

To recap, while there are other retracement values, my defaults Fibonacci Retracements always include:

23.6%	100%
38.2%	138.2%
50%	161.8%
61.8%	200%

You can never tell when price action it going blow well beyond the 100% level.

Algorithm of Fibonacci analysis

Fibonacci analysis and algorithm: Technical analysis is one of the most pivotal tools for forecasting the different twists and turns of the forex trading. Resistance and support levels in the bar charts of the forex trading are the most important components which have to be scrutinized through the technical analysis. These levels are very important to know regarding the entry and exit spots of the forex market. For this respective utility, the Forex traders are also using the "retracement" levels involving the Fibonacci percentages. 38.2% and 62.8% are the two most important retracement levels in the Fibonacci percentages.

Retracement technique: the algorithmic sequence in Forex trading

Most of the times, the retracement track is planned by the forex traders with respect to the initial and peak price of the currencies. At the same time, there are other retracement percentages which are used for the technical analysis like 33%, 50% and 75%. For example, if the initial value of any price trend was zero and later it reached to its peak of 100 but eventually, it lowered to 50, its retracement would be 50%. The same concept is applicable in other calculations are well. In the same manner, if the market price is witnessing a downtrend, the "correction" can be applied in it.

Fibonacci numbers and their application in forex market

The Fibonacci numbers were introduced by Leonardo da Pisa, a renowned mathematician of the 13th century. The Fibonacci sequence was invented by him, a series which later became to be applicable to various realms of arithmetic, economics, commerce and even forex trading. The Fibonacci sequence is as follows like 0, 1,2,3,5,8,13 and so on to infinity. The addition of the first two members given the third consecutive number and there on, the process continues. This sequence aids in the forecasting of the forex market, the oscillations in the exchange rates and the currency conversions. Moreover, since forex is all about history repeating itself time and again, the sequence aids in grasping the fundamentals of forex trading.

The Golden ratio

Later, more calculations were made and it became evident that the sequence also follows a certain fixed ration. For example, when the particular number was in ratio with its just next higher number in the sequence, the value came out to be 0.618 while on the other hand, if the number was in ratio with the previous lower number, the ratio came out to be 1.618. Eventually, these two ratio values were known as the Golden mean or the Golden ratio. It was also later realized that the application of the Golden ratio and the Fibonacci numbers in the technical analysis was very beneficial as it also reflected the human behavior and human nature. This is because the Fibonacci numbers and the golden ratio are applicable to everything from architecture to human body, music, biology and art. Most of the forex traders who have been adopting this technique feel that the entire concept is applicable because trading is related to both science and art. They believe that after a lot of meticulous and close scrutiny of the forex market, it becomes clear that both the price movements and patterns of human behavior are interlinked and the Fibonacci technique have relations to both the patterns.

Risk and greed tolerance are applicable to the forex trade and guide the outputs of the trade. Most of the traders, whether long term or short term undergo the risking and greed tolerance levels. In this case, if an average it calculated, it becomes evident that what the current perspectives of the traders are. In the same manner, the Fibonacci sequence reveals through the cost of the pricing instruments that how many traders have reached or are reaching the tolerance levels.

With the application of the Fibonacci techniques, it also becomes easier to predict the various turning points which would crop up in the forex trading.