Overlapping Fibonacci Trade

A single Fibonacci level may be significant, but two Fibonacci retracements or extensions in confluence are a mighty combination…

The concept of Overlapping Fibonacci in forex trading is one that most traders come to after having used Fibonacci for some time.

Typically, they will be using Fibonacci retracements or extensions looking for a confluence of a Fibonacci level with other signals such as support and resistance, pivots etc. The idea of overlapping Fibonacci is likely to be an exciting discovery. Why?

Because very often that is all you need in order to trade: two strong Fibonacci levels at an area of known support and resistance for example, will very likely yield some kind of usable reaction. Many traders find the simplicity of this strategy appealing, and use nothing else in their trading.

As usual, giving chart examples will probably be the best way to illustrate the concept.

Take any chart with a reasonable run up or down in price, combined with several moderate retracements along the way, and just start drawing Fibonacci on that chart:

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The above example shows two sets of Fibonacci drawn in a strong downtrend. The yellow Fibonacci lines are a result of drawing from the high at the top left of the chart and down to the swing low indicated by the first white circle. The blue Fibonacci lines are a result of drawing fibs from a lower swing high (that coincidentally formed a double top) to the same swing low as that of the yellow Fibonacci.

You can see two possible entries at the confluence of the yellow Fibonacci 38% retracement level, combined with the blue Fibonacci retracement level of 79%.

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The above chart shows a similar situation in an uptrend. Again, the white circle indicates an opportunity to enter on a bullish engulfing candle pattern at the confluence of the 79% and 38% retracement levels.

Note that the confluence can consist of any of the Fibonacci retracement levels, from 38% to 50% to 62% to 79%.

There is also the opportunity to take trades based on confluences that occur at Fibonacci extension levels, and the process for arriving at those confluence identifications is the same: on any chart  draw Fibonacci lines (with extension levels enabled) and look for levels that overlap.

As always, remember to trade with a confluence of other events and signals if they are available. The most powerful supporting signals are:

• Support/Resistance Levels
• Pivots
• Round Numbers
• Fibonacci Levels
• Candlestick Patterns
• Trend