Many modern trading systems allow traders to draw Fibonacci channels over price charts. First a base channel is created connecting a significant price top and price bottom. Then the first slopping line is created by connecting two tops (in an uptrend) or two bottoms (in a downtrend). Then parallel lines are drawn above or below this line at key Fibonacci levels of 23.6%, 38.2%, 50% and 61.8% of the original base channel width (done automatically by the trading system). Traders can also extend the levels to beyond 100% (161.8%, 200%, 261.8%, etc) if there is significant trends.
Interpreting Fibonacci channels is just like horizontal Fibonacci retracements. When one line is crossed in an uptrend it becomes support and above line becomes resistance. Similarly when one diagonal channel line is crossed in a downtrend it becomes resistance and below line becomes support. Most traders use Fibonacci channels with Fibonacci retirements and the price levels when they cross are given significant importance.
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