By Carolyn Boroden, Synchronicity Market Timing
Most traders have heard of using single Fibonacci price relationships to help define potential support and resistance points in a market. Many traders, however, are less familiar with the concept of "clustering" these price relationships to define high probability, relatively low risk trading setups.
For this trading strategy, a "setup" occurs when the analyst sees a coincidence of at least three Fibonacci price relationships that come together within a relatively tight range. This coincidence of price relationships will define a key price support or resistance zone for a potential trade entry. These Fibonacci projections will be made from "key" swing highs and lows obvious on the particular chart we are currently analyzing. The ratios used in this analysis are generally .382, 50, .618.786, 100, 1.272 and 1.618.
Once we identify one of these price "clusters", in order to increase our odds for success, we use a "trigger" as a filter to enter a trade against a particular Fibonacci price zone. Using a "trigger" raises your odds for success using this type of methodology. My favorite trigger is CCI, as taught by "Woodie" of www.woodiescciclub.com.
In the first chart example below, via the daily chart a healthy price "cluster" of price relationships came in between the 8995-9008 area on the Daily June YM contract (the definition of a price cluster is the minimum of three Fibonacci price relationships coming together within a relatively tight range). This was considered a key resistance decision and a potential trading opportunity. In order to look for the quickest/earliest entry against this zone, we took a look at a three-minute chart (see second chart illustration).
In the three- minute chart below, our "trigger" to take a trade entry against this zone was a cross of the CCI "zero" line, which is where the histogram below on this three-minute chart turns "red". Once this occurred, you would elect a short position with your initial stop either above the original price cluster zone at the 8995-9008 zone or just ticks above the high made just prior to the reversal signal at 8996. After this, money management is employed and the market tells you how much the trade is worth!!
In the next chart example, the 60-minute chart is showing us a clear pattern of higher highs and higher lows. We would want to set up our Fibonacci price relationships to enter in the direction of the trend on this chart. There were two zones that stood out for potential support. The first zone came in at 8836-8856. The second zone came in 8798-8817. The actual low in this case was made at 8852 which was directly in this price zone. The eventual rally from this zone took this market from 8852 to 9057.
Let"s go down to a 5-minute chart and look for an opportunity that a "scalper" might get excited about. In this recent example from the June YM contract, a healthy price cluster of resistance developed at the 9030-9039 area. The actual high in this case was made at 9034 which is directly within this key resistance decision. A decline to 8940 was seen relatively quickly from this relatively low risk entry. A stop could have been placed just above the extreme (9039) of the price cluster zone.
These price "clusters" trades do not always work. There are times when the market just blows through them with barely a pause. When you combine these zones with your favorite trigger/filter however, the odds for success are greatly improved.
To get a better understanding on how I identify these key price zones, please join me for my online seminar with the CBOT on July 9. Registration is now available online. Also for more information, please feel free to browse through my website at www.syncmt.com.
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About Carolyn Boroden
Carolyn Boroden is a Commodity Trading Advisor and Technical Analyst that has been involved in the trading industry since 1978. Her background includes working on the major trading floors including the CBOT, CME. NYFE and COMEX. She taught a segment of the Chicago Commodity Boot Camp seminars for 4 years on advanced trading techniques using Fibonacci ratios on both the time and price axis of the market. She has also lectured for the Market Technicians Association and recently at the Tradingmarkets 2001 conference on technique. She currently runs a trading advisory service from Scottsdale, AZ for both institutional and individual clients.
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