Fibonacci Channels work similarly to parallel channels. However, they are best used on a higher time frame.
Using the Fibonacci levels you would use when applying the retracement tool, the Fibonacci channel will produce support and resistance lines.
It is not recommended to trade off these lines alone, but rather use them with additional confluence to support a high probability trade setup.
When applying the Fibonacci Channel tool, it may be helpful to turn on the magnet feature to line up the highs to the low.
Remember with Fibonacci Extension channels, always look for validation on these channels. If levels 0 and 0.618 are not respected with price action, then consider the channel invalid.
Fibonacci Channels work similarly to parallel channels. However, they are best used on a higher time frame.
Using the Fibonacci levels you would use when applying the retracement tool, the Fibonacci channel will produce support and resistance lines.
It is not recommended to trade off these lines alone, but rather use them with additional confluence to support a high probability trade setup.
When applying the Fibonacci Channel tool, it may be helpful to turn on the magnet feature to line up the highs to the low.
Remember with Fibonacci Extension channels, always look for validation on these channels. If levels 0 and 0.618 are not respected with price action, then consider the channel invalid.
Key Points of the Lesson
UTILITY
The three-channel types are best used on higher time frame (4h+).
They can add confluence to trading setups.
Can be used as support/ resistance targets.
TYPE I: Standard Fibonacci channel
Select three pivots (2 high pivots and 1 low) connecting the highs and the lows.
If the fib levels are well respected, it is a valid channel.
TYPE II: FIBONACCI EXTENSION CHANNEL
Uses external target levels:
1.618
2
2.618
3.618
4.236
Connect the high (peak), to the low (valley), to the secondary high (peak). On the second peak, there should not be any other touch.
If there is no respect with the 0, 0.618, or 1, it is not a valid channel.
TYPE III: FIBONACCI LONG TERM CHANNEL
Used on daily timeframe or higher
Use log scale. Log scale is used when you look at older data or when there is a lot of volatility.
Levels:
0
0.25
0.5
0.75
1
They can give you an outlook on when long-term trends might be over and possibly reverse.
TIPS & TRICKS
The 0.618 and its multiples are the preferred Fibonacci levels.
Always use the channels with other tools.
The levels need to be respected to have a valid channel.
TAKE HOME MESSAGE
Used for long term analysis and targets.
Strong confluences builders.
0.618 and its multiples are the preferred Fibonacci levels.
Champion channel between the 0.618 and the 0.66.