Fibonacci Price Clusters

While most traders are familiar with Fibonacci price retracements, most aren't aware of the power of using Fibonacci retracements over multiple time frames ... or, another name – Fibonacci Price Clusters.

When you have retracements from different time frames that overlap, the chance for a reversal in price is more likely.

Think of it this way, you have traders from different time frames coming to a similar conclusion. If enough traders agree that a certain price level provides a low risk entry point, then you have the makings of a reversal.

What follows is an example of possible reversals using standard Fibonacci retracement levels on mulitple time frames. Keep in mind that this is a real time example as of this writing. I have no idea how this stock will react to Fibonacci price levels. Time will tell.

The 60 minute chart for the Chicago Merchantile Exchange, CME, shows the stock running up from near $160 at the end of October 2004 to a high near $212 less than three weeks later.

From the mid November high, the stock has made a series of lower highs and lower lows – a correction to the recent uptrend.

Where can we look for a low risk buy entry?

The next chart shows the same time frame with the 38%, 50%, 62%, and 78% (which is the square root of the 62% retracement level) levels marked off.

Note that the recent price action on this chart shows price bouncing off the 38% retracement level.

Is this a likely price level for a price reversal?

The next chart gets busy.

What has been added is the same retracements, but on a smaller time frame.

For the shorter time frame, note that the 38% didn't stop the decline, nor did the 50% retracement level.

Here's where the price cluster kicks in. The 38% retracement level ($192.30) on the smaller time frame corresponds to the 62% retracement level ($191.65) on the larger time frame.

This is a more likely reversal level.

And if this price level doesn't hold, the next likely reversal level based on Fibonacci retracements is at the confluence of the 78% retracement level ($186.18) from the shorter time frame and the 50% retracement level ($186.29) on the larger time frame.

Trade well!!!

Recommended

Robert Miner's Dynamic Trading - a manual that covers the practical applications of price, time, and pattern to trading decisions. If you are serious about applying the concepts of market symmetry, this is the book for you. Dynamic Trading makes use of the teachings of W.D. Gann, the Elliott Wave theory, and the Fibonacci series. This is a complete package - over 500 pages fully detailing a trading plan with trade setups, money management, and real life results.

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