Additional Examples of Fibonacci Confluence

May 15, 2009: 10:44 AM CST

A few traders have emailed me asking more about Fibonacci Confluence grids as I mentioned in yesterday’s educational post “A Lesson on Fibonacci Confluence.”  I wanted to share a few more examples of this powerful concept in action.

I expanded upon this thought in a recent article submitted to the website entitled “How to Use Fibonacci Confluence to Time Lower Risk Entries” which describes the methodology in slightly more detail.

I showed the example of Apple (AAPL) in 2004:

Assuming we didn’t know the future – and don’t we wish we would have bought Apple back in 2004 when it was around $10 per share! – we notice a nascent uptrend off the December 2003 lows and see a key swing high (and gap) into April 2004.

Using the $14.80 high, we draw two Fibonacci grids down to the February and December lows (highlighted) and our software draws the respective Fibonacci grids.  Of most importance, the 38.2% and 50.0% retracements converge at the $12.82 level, which is where the downswing off the April high terminated, giving us a low-risk entry.  Two doji candles in a row enhanced our confidence of a successful trade.

One might have played this as a swing trade and put a stop beneath the approximate lower level of confluence at the $12.20 level (the respective Fibonacci grids in this case come into close but not exact confluence).

Another example in Jabil Circuit (JBL) in 2005:

Starting with the July highs, draw back (or vice versa, depending on your software package) to the three prior swing lows to arrive at a Fibonacci confluence at the $28.50 level.  Notice the multiple long-legged (shadow) candles that bounced off this level.  Sellers couldn’t push price down through this critical confluence level. However, it would have been a good idea to give the market a little more room and place a stop beneath thelower confluence at the $27.50 level.

Price surged off this level to new highs not seen on this chart above.

Finally, an example of Google (GOOG) in 2007:

There’s something really interesting I wanted to show with Google (GOOG) here.

Notice the first level of confluence comes in at the $497 level with the first highlighted zone I drew in July 2007.  That was your initial buy (if you were aggressive).  For a little more confirmation, look closely to find that the longer (larger) Fibonacci grids off the August 2006 lows came in at the $483 level which was more important to the market.

This is a lesson that longer term Fibonacci retracements will often carry more ‘weight’ to traders than shorter term grids (such as that drawn off the May 2007 lows).

If you decided to buy at the $497 shorter term level, then you should have placed your stop (if you could afford it) just beneath the $483 confluence level.  Notice that price nipped just beneath it before heading higher into a large momentum move that carried much further than this chart scaling shows.

Try it out for yourself for deeper learning on all timeframes!

Corey Rosenbloom, CMT
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All charts created with TradeStation.

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