A Lesson on Fibonacci Confluence May 14

May 14, 2009: 9:32 PM CST

Thursday’s intraday trading action gives us a perfect example of how to use Fibonacci grids to uncover ‘hidden’ confluence zones in the market action.  Let’s see how to do it and how it played out in the SPY.

The traditional method for drawing a Fibonacci Tool Retracement Grid starts with drawing a Fibonacci grid from a key low and then ‘dragging’ it up to a key high.  Your software platforms might be different, but the main idea is to have the computer draw in the 38.2%, 50.0%, and 61.8% “Fibonacci” retracement lines to find where price might come back into support and bounce to continue the trend higher.

In this case, if we started with the intraday low of $88.50 and drew up to the intraday high at 1:00pm of $89.85, we find that the Blue Grid shows up on our chart, and that price found support exactly at the 38.2% retracement at $89.33.

But wait!  There’s more!

There was a key higher swing low at $88.81 at 11:00am.  You can use that low as well to draw a Fibonacci Retracement Grid back up to the same high.  What happens is often endlessly impressive to me – sometimes you get an exact (or near exact) overlay of the same price level.  In this case, the 50.0% Fibonacci Retracement from the 11:00am to 1:00am swing came in at $89.33, which is the same price as the larger swing’s 38.2% Retracement.

Aside from being impressive, this tells us that $89.33 is a very important level to watch for support.  Remember we draw the grid off the high we see at the time and our goal is to find a high-probability place where the market will find support and head higher, perhaps up to a new high so we can participate in a trade.

The other zone of approximate (though not exact) confluence comes in around the $89.20 level, which means that if sellers can break the Fibonacci Confluence at $89.33, then we should watch the $89.20 level for a second ‘line of defense’ or level of support.

I call zones between Fibonacci Confluence prices as “open air” and can setup “Magnet Trades…” but that’s a whole other topic.

If you’re interested, play around with your Fibonacci Toolkit (particularly the retracements) and see what other hidden confluence levels you can discover in your favorite stocks or ETFs.

You might just be amazed how often the market respects hidden Fibonacci Confluence zones!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

4 Comments

4 Responses to “A Lesson on Fibonacci Confluence May 14”

  1. dawn Says:

    Corey, thanks for the Fib lesson. I just used it to time entry into $ES and it worked like a charm! I was never able to draw those before

  2. Corey Rosenbloom, CMT Says:

    Thanks Dawn! It's encouraging to hear that!

  3. greg Says:

    Nice Work… simple things we never think on it.. because we have our brain involved in extremely complex strategies… thanks a lot… sorry for my English

  4. greg Says:

    Nice Work… simple things we never think on it.. because we have our brain involved in extremely complex strategies… thanks a lot… sorry for my English