Fibonacci Clusters

Fibonacci Clusters

In our previous examples we have seen how both Fibonacci Retracements and Fibonacci Extensions can be powerful tools on their own. Often, I use multiple Fibonacci Retracements to determine entry and exit points.  Using multiple levels like this is called Fibonacci clusters. You can  also combine Fibonacci Extensions. Let’s look at an example where using multiple Fibonacci Retracements prove very useful. In Figure 13 we see the dramatic fall of the USDCAD that we looked at from a different perspective in Figures 4, 5 & 6.

Fibonacci clusters

Fibonacci Clusters

In the figure above I have added two Fibonacci Retracements.  Take special note to the two areas highlighted.  These areas identify clusters of Fibonacci levels.  The bounce off the bottom blew directly though the first cluster of 23.6% and 38.2%. In subsequent retracements, this level became support and you could have safely used it as a very low risk entry point. Additionally, the 38.2% and 61.8% cluster became resistance. In two of three cases you could have used this information for low risk short side entry points. The key to remember in this example: You had all this information immediately after the swing low was established.  Therefore knowing these levels this early in the swing allows these levels to be predictive

Now let’s add one more Fibonacci Retracement. (See how Fibonacci clusters work together to identify the same important levels?)

Fibonacci Clusters

In the figure above I have added a third Fibonacci Retracement.  For the patient trader, the third set Fibonacci Retracement levels provides more confidence that both Point A and Point B are high quality and low risk entry points from the long side. After practicing this method for a while, you will find it common for you charts to have multiple Fibonacci Retracements. Learning to create and read Fibonacci Retracement clusters is a powerful and valuable tool for your Fibonacci Toolset.  You can also cluster multiple Fibonacci Extensions.  In the Fibonacci clusters  you see this in action.

Fibonacci Clusters

In this chart you see two different sets of Fibonacci Extensions applied. As you can see there are four, two level groups. Each of these groups represents low risk entry points. Ideally, you would want to initiate the position somewhere between the two levels. Additionally, with this type of setup, you can almost trade from pair to pair.

As you can see by the previous two examples, it would be very easy to draw countless retracements and extensions on virtually any chart. It really depends on the chart and the price action.

In Figure 7 we looked at the Bottoming of the GBPUSD using one basic Fibonacci Retracement. Let’s revisit GBPUSD on a bigger scale and add to our thesis.

In our next chart I have added a larger Fibonacci Retracement that encapsulates the entire top to bottom move and I have added a Fibonacci extension from the high and low swing points within the retracement price action.  These additions are shown on our chart below.

Fibonacci Clusters
Take special notice of the Fibonacci clusters highlighted. Each of these Fibonacci clusters served as either support or resistance points.  And each created a tradable opportunity.

Complimentary Download
Fibonacci Training Manual
Fibonacci Squeeze System