Fibonacci retracements are very common in the trading universe and many have them on their charts but don’t use them. They put up Fibonacci retracement levels (fib levels), since its a very easy drawing tool to use on most trading platforms, but price approaches a fib level and they think, “now what?”. Is it just support or resistance? Do I play a breakout? If I get a close beyond a fib level, what is the probability of price reaching the next fib level?
One of the easiest ways to use Fibonacci levels is identifying Fibonacci “clusters” and using them as breakouts and as critical support or resistance. It’s a very simple concept. Plot Fibonacci retracement levels on multiple time frames and see if any match up. Its best to use multiples of 3 of 4. for example; If your main chart is a 5 minute chart, use a 15 minute chart and an hourly chart. If you use a 10 minute, use a 30 minute and a 2 hour. When you see fib levels at or near the same price levels on different time-frame charts, that is a Fibonacci cluster. Fibonacci cluster are best used for breakout, then pull back entries and for placing mental stops beyond the clusters.
Make sure you are not measuring the exact same move and finding that all levels are identical. The idea is that different time frames show different lengths of each trend, so when you are measuring for retracements of an up move on the lower time frame, you may notice that its part of a longer up move or a correction within a down move an a higher time frame.
Critical levels will show themselves when done right and as you get comfortable with this concept, you will be able to take higher probability trades with great reward to risk ratios when placing these trades in Nadex binary options. If you find multiple clusters, you should consider Nadex spreads, since one clusters could trigger an entry and the same or a nearby cluster can be used as your mental stop. Master this and you will become a willing disciple of Fibonacci Clusters.