While most people find it easy to understand simple Fibonacci concepts, the notion of “Fibonacci Confluence” can be confusing to many aspiring traders.
If we begin with a common price point, for example a price low, we can draw additional Fibonacci grids from key swing highs in the past to see where key ratios might converge at an overlapping price level known as a “Confluence Point.”
Fibonacci Confluence Zones occur when certain levels derived from multiple Fibonacci grids overlap at a common point. Let’s look at an example:
If we begin at the price lows of 2008 as our common starting point, we can draw Fibonacci grids from each key swing high in price and compare the Fibonacci Levels that form close to each other, or overlap. These zones might give us additional clues that we could expect heavier resistance at those zones than an isolated Fibonacci retracement.
The numbers drawn correspond with the respective price swing from which the Fibonacci grid was drawn.
The key confluence zones are highlighted yellow, which form where at least two Fibonacci retracement grids almost align.
Fibonacci Confluence Zones can add an extra dimension of confidence in your analysis and trading.