Fibonacci and Gann Applications in Financial Markets

Other Applications of the Fibonacci Retracements and Extension 35
Figure 3.6
This is in contrast with the failed attempt at the 50% fanline, which although it was
taken out it was only brief and the contract slipped once again into a consolidative
phase. In technical analysis consolidative phases tend to be horizontal in nature but
here is a rare example of consolidation about a sloping line, this time the 38.2% fanline.
This is not indicative of preparation for a bounce but describes the underlying
sentiment, which is undecided. It is only later that the slide from the 38.2% fanline
comes under threat as consolidative support from the July–August period of 2003 supports
the long consolidative zone from early 2002. This goes relatively unscathed and
results in a sharp bounce with a small flag at the 50% penetration before further gains
through the 61.8% fanline at the end of October (see Figure 3.7).
PROBLEMS WITH FIBONACCI FANLINES
A more detailed look at Fibonacci fanlines, their properties and drawbacks, is looked at
in succeeding chapters but for now it is enough to say that a break in a fanline will be
similar to that of breaking a vertical retracement level – the next one in the sequence
will be seen as a target zone. Whether this lasts for very long as support or resistance is
not suggested, only that the price will move to that level. Indeed, as the price moves
towards the fanline, it could be that the fanline will move up towards the price (remembering
that the pattern moves as time progresses) and this could see the fanline cutting
through a period of consolidation and continuing higher. This would mean that the fanline
changes from being a supportive target zone to a resistance level as time moves forward.
If that is the case, then the effectiveness and indeed usefulness of the fanline is