Trend fans are an extension of the regular trend line, and accent simple trend line trading concepts by extending the single trend line to a multiple of fan lines that give you a better look at a trend, its retracements and market reversals.
Take a look at this diagram. As a trend moves up in scale, a chartist will generally draw a vertical line across price bar lows; or alternatively, when a market is moving down, across the price bar highs.
Then, as the market continues to make its retracement, we can then draw another trend line across the next level of support or resistance. The line is support if the market is moving up and resistance if it is moving down.
You will notice how the last move of the trend, which was resistance for the first trend line, is now support for the second trend line. Now draw the third trend line. At this point, you can see that the market has made a solid retracement down past this third fan line.
When the market crosses the third fan line, it is considered to be confirmation of market retracement; a market that was once considered bullish...is now bearish, or if bearish, would now be considered bullish.
Rule of Thumb:
When the markets price bars cross above or below the third trend fan line, this is your signal and confirmation that the market has shifted from bullish to bearish, or bearish to bullish.
To Trade a Trend Fan:
Place an order to enter the market on the break out past the third trend fan line. See the example charts:
Example of a Trend Fan using Track ‘n Trade Pro
Example 2 of a Trend Fan using Track ‘n Trade Pro
Example 3 of a Trend Fan using Track ‘n Trade Pro
