Fibonacci Channel

Fibonacci Channel is a variation of the Fibonacci retracement pattern in which the trend lines run diagonally rather than horizontally.

Fibonacci Channel

Fibonacci Channel is a variation of the Fibonacci retracement pattern in which the trend lines run diagonally rather than horizontally.

 


Fibonacci Channel Calculation

The Fibonacci Channel is constructed on the price chart by first drawing two parallel trend lines as shown in red below.  The remainder of the channel lines are drawn parallel to the first two lines with a distance from the first trend line based on the Fibonacci number series (0.618, 1.000, 2.618, 3.618,etc).  The Fibonacci lines are shown in blue in the chart below.

Price chart illustrating Fibonacci Channel trend lines


Fibonacci Channel Interpretation

Fibonacci Channels are interpreted in a fashion similar to horizontal Fibonacci retracements. For example, the Fibonacci Channels on the chart (above) appears to be particularly adept at identifying significant trend reversals.

When one Fibonacci Channel line is crossed in an uptrend it becomes support and the line above becomes the next resistance line. Similarly when one Fibonacci Channel line is crossed in a downtrend it becomes resistance and line below becomes the next support. Traders often use Fibonacci Channels in conjunction with Fibonacci retracements.  The price levels where they cross are considered to have significant importance.

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