What are Fibonacci Clusters
Fibonacci clusters are a tool used in technical analysis that combines various numbers of Fibonacci retracements, all of which are drawn from different highs and lows. Fibonacci clusters are indicators which are usually found on the side of a price chart and look like a series of horizontal bars with various degrees of shading. Each retracement level that overlaps with another makes the horizontal bar on the side darker at that price level. The most significant levels of support and resistance are found where the Fibonacci cluster is the darkest.
BREAKING DOWN Fibonacci Clusters
This is a useful tool to gauge the relative strength of the support or resistance of various price levels in one quick glance. Traders often pay close attention to the volume around the identified levels to confirm the strength of the support/resistance. As the name implies, the general strategy behind the Fibonacci clusters is to find where traders are concentrating the most; it's where we'd expect the greatest level of price clustering. While results are empirically mixed as to whether the Fibonacci cluster's have predicated value, they do show promise in signally high probability market reversals.
Origin of Fibonacci Clusters
The Fibonacci clusters get their name from the Italian Leonardo Pisano Fibonacci, who picked up the ancient Indian system of nine symbols and some other mathematical skills that would later become instrumental in the development of the Fibonacci numbers and lines.
The Fibonacci studies are popular trading tools. Understanding how they are used and to what extent they can be trusted is important to any trader who wants to benefit from the ancient mathematician's scientific legacy. While it's no secret that some traders unquestionably rely on Fibonacci tools to make major trading decisions, others see the Fibonacci studies as exotic scientific baubles, toyed with by so many traders that they may even influence the market. We offer a deeper breakdown of Fibonacci and his numbers here.