Fib-Fan Projection Drawing Technique

This technique is meant to be used in trending markets, either early or late in a trend of any timeframe. The trend is in the timeframe you are trading, The daily chart may be showing a ranged market, but a 30 or 5 minute chart may be showing trend so this technique can be used on that 30 or 5 minute timeframe - in fact, this is the only technique in this course that works well on the 5-minute timeframe, provided there's trends visible on that chart. This technique uses the Fibonacci Fan which is available in many charting software, but not all. If your software allows Trendline drawing and has the Fib Retracement you can draw your own Fib Fan's.

The Fib-Fan Projection can be used on rising or falling markets. This technique can be applied just 2 bars after the bar labeled 3, when a pivot is confirmed. In this drawing example I'm using a rising trend on a 5-min chart of the DJ Minifutures (it works the same or slightly better on the DJ Index). You need to be able to see 4 pivots as shown below. The "0", or lowest pivot, does not have to be a major or significant low. I recommend that it be the lowest low in the past 15 bars minimum. Very important is that you see two high pivots like "1" and "3" below (in a falling market "1"and "3" would be low pivots).

·        don't confuse the labeled pivots as Elliot Waves - they're just simple pivots

·        these pivots don't require a specific retracement before or after the pivot bar as in filtered-waves or the zig-zag indicator - they're just the simplest of pivots; the only stipulation is that you have a rising or falling market in the timeframe you are observing

Now draw a rectangle using "0" and "3" as the corners.

Now draw a Fibonacci Fan (FF) in the upper left and another in the lower left corners. For MetaStock users the red arrow points to the FF icon.

Now move the FF's horizontally forward to the right corners of the rectangle (interpretation in the next section).

If you use the Fibonacci Trader or Galactic Trader (FT/GT) software you can draw an extra useful line. First select the Fan properties and set it as shown below. The new Fan line is the 78% line.

In FT/GT you won't have to draw a rectangle, as the software draws a horizontal line from its start (the left corner) to the pivot you connect it to (the right corner).Simply looking at the below example should clarify my slightly confusing wording.

As shown below, each FF can be moved horizontally forward from "0" to "3"(interpretation in next section).

Market Type

The Fib-Fan Projection deserves special mention as it can be used on all timeframes,including intraday 5-minute charts. The only requirement is that you see clear market swings. It's very good on trend days and wide range days, but cannot be used in narrow ranges or choppy periods. It works best in trending markets that show strong trends. It is poor in narrow and medium range markets, and acceptable in wide range markets. By "acceptable" I mean that it can be used in the Timing Matrix to build time-zone clusters. It works best on these market types: