Fibonacci and Gann Applications in Financial Markets

6
Application and Common Errors
in Fibonacci Fanlines
Construction of a fanline within a primary move.What does the addition of
time within this charting tool give to the analyst? What effect does the extension
of the time axis (x axis) have in the accuracy of forecasting?
Let us take some time to look at the construction and errors within the Fibonacci
fanline pattern. We saw in an earlier chapter (Chapter 3) how to construct this move
from the significant low and origin. In this chapter the examples use lows but application
and results would be equally true from a significant high. However, fanlines
from highs do give some problems which will be outlined later in this chapter.
This first example (Figure 6.1) shows a daily annualised yield chart of the tenyear
Japanese Government Bond (JGB) with a Fibonacci fanline constructed from
the June low to the extreme high in early September. Here the fan pattern is very
steep and in my opinion fanlines as steep as this are sometimes of little value. However,
it can be noted that steep fanlines do not suffer from the problems associated
with the lack of weekend and holiday data, but nevertheless a steep fanline will only
exist for a short time. Here the retracement supports at the fanlines work very well
with a little pause at the 38.2% fanline support in mid September and a bounce from
the 50% fanline later that week. The failure to break back towards the 38.2% fanline
is seen as the signal for consolidation, which happens until the early November
period as the yield moves within a little channel. Notice that the attempt to take out
the 1.55% area and move towards the 50% fanline fails, which triggers a sharp move
lower again towards the key 61.8% fanline, where a small pause is followed by consolidation
after the break. Further analysis is needed from here as the yield has
moved significantly from the pattern and more traditional methods should be used.