Fibonacci Ellipse, also known as phi-ellipse, is an investment tool used in technical analysis, identify price patterns. Traders use Fibonacci Ellipse to identify market trends and determine resistance and support levels. When prices change in the market, the shape of the ellipse circumventing the respective market price pattern changes too. Because it can be different shapes, long or short, fat or thin, with flat or steep angles, ellipse can fit most market price patterns.
a Fibonacci ellipse can be drawn with three selected points: an arbitrary starting point, the first peak before a reversal in price levels, and a second point representing a second reversal back toward the direction of the overall trend. Once these three points are identified, an ellipse can be drawn to depict all three points and the line that bisects this ellipse is used to indicate the overall trend.