Spotting Trend Reversal Through "The Fan Principle"


    

Having already covered Trend and Trendlines, in this post we will learn how to confirm trend reversal using "The Fan Principle". The objective of Fan Principle is to spot trend reversal. 

Fan Principle in case of Down Trend:
In order to spot trend reversal in a down trend we plot three lines from the top high made by the stock to subsequent lower highs made by it. As show in the chart below:Image result for fan principle in down trned 

The Trend reversal is confirmed when the price crossed third fan line as seen from the chart above. Following is a real life example of the fan principle:



In the above chart the trend reversed and started moving upwards after crossing third fan line.














State Bank of India reversed from downtrend after breaking above third fan line. Charts are from March 2013 to October 2014.


Trend Reversal In Infosys Ltd.


So, from now onwards when ever we come across stock which are in downtrend. We can use the fan principle to spot the reversal of trend. Also, another point to note here is that there should be subsequent lower tops made my the stock as in case of above example for the fan principle to work. If you find such pattern anywhere you can surely go long in that. 
Happy Investing
The Stock King
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Javed Akhtar
AUTHOR
February 21, 2015 at 10:29 AM delete

Looks gud...But not cleared.. Can you please elaborate. How we can define which one is 1st line.. And how can we definitly say that after 3rd fan line trend will be reversed? Please put some more light.

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Bhavin Mehta
AUTHOR
February 21, 2015 at 10:47 AM delete

Can you please share similar example for trend reversal from uptrend to downtrend ? Thanks in advance

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February 21, 2015 at 11:05 AM delete

for first line you have to connect the top made by the stock to subsequent lower tops made during the downtrend and trend reverses when the price breaks above the third trend line

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February 21, 2015 at 11:07 AM delete

for uptrend to downtrend we use support, channel line and resistance plays. Please refer to our recent posts

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February 21, 2015 at 11:43 AM delete

not edited and elobrated........................ regards

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vp
AUTHOR
February 21, 2015 at 4:03 PM delete

Thanks Abhi, Learned something new.. thanks a Lot.

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Rahul Kapoor
AUTHOR
February 22, 2015 at 8:53 AM delete

Very good article :-)
Can you please tell how can i find the resistane and support level in chartnexus. would it be manually draw by drawing tools or any option available in chartnexus to auto draw the resistance support line?if any option available please guide where is it?

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February 22, 2015 at 11:23 AM delete

In chart nexus, you can do it automatically for 2-3 stocks per day. in the bottom you wil find SR button, open the chart click on SR and it will show the resistance and support. You can also do it your self please refer to support and resistance post to learn how to do it yourself. Regards

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February 22, 2015 at 2:30 PM delete

How many months chart is to be studied abhi.. In general not only about trend reversal.. And one more is that every stock follows our analysis

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February 22, 2015 at 2:50 PM delete

i generally use 9 months or yearly chart for my analysis............. yes it will work most of the time but exceptions are always there.....

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Rahul Kapoor
AUTHOR
February 23, 2015 at 12:27 PM delete

Hello abhi sir,

I got SR option in chart nexus
thanks

Can we view channel line and fan principle in auto mode or it can be done manually by drawing tools?

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February 23, 2015 at 4:56 PM delete

the channel line and the fans have to be drawn manually using the drawing tools.............

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annu friend
AUTHOR
March 6, 2015 at 4:14 PM delete

Yes fan principle works out but it can b used as an additional indicator with channel breakout. Its v.difficult to recognise the subsequent lower tops in downtrend as in examples provided above.
Also i think this can b well placed whenever there is a steep fall in price as i can observe.

Please correct me if i am wrong.

Thanks n regards
Amit santwani

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March 6, 2015 at 4:57 PM delete

yes broo we do use fan principle as an additional indicator along with concepts of support resistance, channels and chart pattern and incase the previous peaks are at same levels we use the second one to start drawing the fan lines...................

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Vikas Kumar
AUTHOR
May 23, 2015 at 1:09 PM delete

thanks abhi.good article

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Atul
AUTHOR
August 8, 2015 at 9:10 PM delete

Can we use the Fan Principal Futures for going long in the script?

Whic charting can we use for shorting in Futures

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August 8, 2015 at 10:59 PM delete

sure u can .................. it will work for all futures commodities or anything that can be charted for shorting futures use climax, resistance and reverse fan..............

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March 25, 2016 at 1:25 PM delete

bro I dint understand about how to draw the 1,2,3 lines. on what basic you will draw the lines. can you through some idea.?

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March 25, 2016 at 1:35 PM delete

Hi Hemant, as explained in the article lines 1,2,3 are drawn from last high towards subsequent highs made in the chart. Please look at the chart you will understand.

Best Regards

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