Fibonacci Trading – An Advanced Fibonacci Analysis Strategy
Fibonacci Trading describes the use of Fibonacci retracements and extensions, a fantastic way to gather accurate data on crucial resistance and support lines.
Since their introduction into the world of trading, Fibonacci retracements and extensions have proven to be immensely dependable and reliable and this is why they are often deemed priceless by traders.
However laying the retracements and extensions is a manual process which is ultimately at the discretion of the trader. This can lead to problems in situations when there a multiple high and low prices and laying the Fibonacci analysis on top of a candlestick chart can be inconclusive.
In these situations traders can become confused and feel less confident in their analysis. However by using Fibonacci clusters a trader can counteract this problem with a solution that is simple and effective.
Fibonacci Trading in Practical Application
By projecting the resistance and support lines, Fibonacci retracements and extensions provide invaluable data to a trader. If applied correctly the Fibonacci analysis can determine extremely accurate resistance and support lines but if applied incorrectly a trader could create problems.
Using Fibonacci analysis incorrectly is a distinct possibility when there are multiple high and low points present on a candlestick chart. In these situations it can be hard to decide which two points to choose from.
Choosing the correct two is very important because it has a big impact on where the Fibonacci analysis will detect resistance and support lines and if done inaccurately a trader might end up playing the market to false resistance and support lines.
In a situation such as this a trader can use Fibonacci clusters as a solution. Clusters are very simple to employ and although they may not provide data as accurate as a single retracement or extension they are very reliable.
The idea behind Fibonacci clusters is straight forward, a trader should lay multiple retracements and extensions over a single candlestick chart in order to determine where the resistance and support lines are. This strategy should only be employed when there are lots of high and low prices to choose from and when this is the case a trader should choose several prices and apply the Fibonacci analysis to them.
This will help determine average points of resistance and support and is much better than simply guessing two prices and using only one retracement or extension.
The result may look a bit confusing because there will be lots of information on the candlestick chart, but a trader should be able to distinguish points where several retracements or extensions line up and agree on a point of resistance or support.
If this is the case it is very likely these clusters will behave as genuine points of resistance and support and they can be relied on by traders. When a price approaches one of these clusters it should behave as expected by either rebounding or breaking through.
This strategy works excellently when a trader is uncertain of where to place a retracement or extension, and on the whole it also works accurately as an indication technique.
Fibonacci trading is an art, one that can be easily mastered with a few tips and specific examples. For a complete free tool set visit our site.
By: Mark Deaton
