My definition of a price cluster is the coincidence of at least three
Fibonacci price relationships that come together within a relatively tight
range. These price clusters identify key support and resistance zones that
can be considered to be trade setups. A price cluster can be created from
three retracements, three extensions, three projections, or the combination
of any of these price relationships.
Aprice cluster can also develop with a coincidence of more than three
price relationships. Three is just the minimum number required to meet
the definition. You may see five to ten price relationships come together in
a relatively tight range. When you do see more of these price relationships
come together, this doesn’t mean that the zone is more likely to hold, but
it does tell you that it is a very important price decision zone. If the zone
holds, you are likely to see a nice move off of it a high percentage of the
time. If the same key zone is violated, don’t be surprised if you start to see
an acceleration of the original trend going into the zone. There are times
when I see these large clusters develop not too far from current market
activity, and they tend to act like a magnet for price.
61
Copyright ©