Using Fibonacci Clusters to Identify Support and Resistance Levels

Fibonacci clusters are tools used by technical analysts to identify support and resistance levels by combining multiple Fibonacci retracements. A retracement refers to a reversal in a stock price’s movement due to the tendencies of prices to correct (or “retrace”). In Fibonacci analysis, Fibonacci numbers, and the ratios they offer, are used to offer indications of support and resistance.

Fibonacci clusters, found on the side of a price chart, are shown as a series of horizontal bars with varying degrees of darkness. Each retracement overlap makes the bar darker, with the theory being that the most significant support and resistance areas are shown where the Fibonacci cluster is darkest. The technical analyst will then review the volume associated with the identified support and resistance levels to confirm the significance of those levels.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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