Fibonacci Convergence or Confluence

trader — Fri, 17 Apr 2009 12:47:13 +0000

Take Fibonacci retracements and projections from a number of different lows or highs to find a level where 2 or more retracements/projections are at the same level. This wil give a level with a strong possibilty of a turning point.

Convergence is when the coincidence of 2 or more Fibonacci price relationships comes together with a relatively tight range.

For example, a Fibonacci convergence is where a 38.2% off one high and 50% off another and a 61.8% off another, converging on the same area of the chart. A Fibonacci extension can converge with a Fibonacci retracement creating a bounce.

Two Fibonacci retracements have been drawn on the chart above from two different low ponts. Three cluster points are drawn:

A - where the 61.8% and 32.8% retracements concide.

B - where the 38.2% and 23.6% retracements concide.

C - where the 61.8% and 100% retracements coincide.

Trade Examples:

Example 1.

GBPUSD 30 min chart.

In the chart above, we have a classc ABCD pattern where the entry point is at point C, a 76.4% retracement and a Morning Star Candlestck Pattern.

The point C was at 76.4% and not 61.8% (76.4% is popular on the GBPUSD), but by waitng for the candlestck pattern i.e. the Morning Star we found confirmation of the reversal and a good trade to point D the 161.8% projection.

Note also the point C was close to a Double Bottom with point E and formed a Higher Low Pattern with point 1

Example 2

GBP/USD 4hr

Looking at the GBPUSD 4 hour chart we have the two trade examples:

1. Entry at Point B on the Bull Engulfing candle with a Target Exit at the 61.8% retracement of the move A to B

2. The ABCD pattern with entry at C being the 61.8 % retracement of the move A to B confirmed by the double bottom at pont C or the Bull Engulfing candle above C. he trade exits are at 161.8 % projection at D or the 261.8% at E. Either exit gave very good trades. Note there is a Fibonacci convergence at point E.

Note that point D also forms a Double Top with point A. This convergence of the Double op and the 161.8% projection increases the relabilty of the exit point.

Example 3

GBP/USD 4hr

Again using the ABCD pattern another good long term trade with entry from the 61.8% retracement confirmed by a Higher Low Chart Pattern.

Exit at point D the 161.8% Projection of the move from point A to point B…

Example 4

GBPUSD 4 Hour

In this example, the candlestck pattern is a Bearish Rejection Pattern which is a convergence of candles at a resistance lne, a 50% retracement. Note how the currency pair was rejected at this level.

The first target point 161.8% of the move from point A to point B at D provided a small support where the price pulled back a small way before continuing down. his was caused by traders exitng the trade at and around that point.

Example 5

EUR/JPY 30 minutes

This example is a trade off the 30 minute chart. Note how the currency pair set up by retracing to pont C which happened to be a 50% retracement point before continuing short. his could also be called a “bull trap” as a trader could have entered long at B, only to find the trade rapidly reversed. It is important to watch the price action on and around the major Fibonacci levels. Because the trend was down, good traders would have waited for the reversal at C before placing short trades.

Note how the strong short move stopped close to the 161.8% projection of the move from point A to point B. This is where most of the traders took their profits, causing a pullback.

Example 6

GBPUSD 30 minute

This is a simiar example to the previous example with the retest of the point A only reaching 76.4% at point C. Again point C provided a good entry point for a long trade. A Morning Star Candle Pattern provides the entry confirmation.

Example 7

GBP/USD haurly

In this example we see how a good trade can be taken from the Double Top / Evening Star at point B with target 61.8% retracement.

The chart above shows how effective the 61.8% Fibonacci retracement is. A long trade placed just above the “Point C” provided a very profitable trade. Entry is confirmed by the presence of a Morning Star Candlestck Pattern at “point C” and the convergence of the 61.8% retracement with a Support Line.

The Exit Points are shown on the folowing chart.

Note the area of consoldation / retracement as the GBP retraces from point B down to C at 50% before continuing to point C at 61.8%.

Also notce how the GBP retested point B (forming a Double op and Evening Star) before retracing. This retestng of previous Highs and Lows happens frequently. (Forming Double ops / Bottoms or Lower Highs or Higher Lows)

Example 8

GBP/USD 1h

The chart above is the same as the previous chart, but shows the Fibonacci projections. A long trade placed at “C” with targets of:

1. 161.8 at “D”

2. or 200% at “E”

3. or even 261.8% at “F”

provide profitable trades. Note how the price has consoldated or turned at the major Fibonacci levels.

The Fibonacci levels can be used on any tme frame and the concept is the same. Hence they can be used for posion trading through to intra day trading.

Note the consoldation areas at or close to major Fibonacci levels. here is a consoldation just below the 161.8% projection level. The different charting software and price feeds do not always give exactly the same Fibonacci levels. This often happens and traders need to be alert for this and respond accordingly.

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Fibonacci Convergence or Confluence