*How to trade simple charts and learn to use Fibonacci clusters!*
As with most of my trades and technical analysis, I like to keep the charts very clean and clear in order to avoid over thinking and clouding my judgement. I use very few technical indicators when analysing the charts, Fibonacci Retracement levels for my swing trades and if I am day trading then I will also use RSI and Daily Pivot Points. Apart from that, all I use is the price action itself, the trendline tool and 50 EMA.
The point I am trying to make in this post is that you do not need loads of technical indicators on your charts or 5 moving averages and a million trendlines. All these will do is cloud your vision and make you hesitate entering trades and managing your open positions.
Sometimes the best trades are the simplest trades. Today I have entered a fairly short term intraday position on GBPUSD today and all I have used is 3 tools along with my eyes and knowledge of the FX currency markets. The chart is below.
On this chart, I have placed 1 trendline, 1 support level and 2x Fibonacci Retracement tools – that is it. What I am looking for is a very simple trend continuation position because the GBPUSD has made 2 consecutive lower highs and is now respecting the descending trendline.
The key to this trade and the main reason why I have entered a short position after quite an aggressively bullish 1 hour candle is the zone that price is now in. By using the Fibonacci Retracement tool on the previous 2 bearish swings of the current trend you can create and find “cluster” zones where key Fibonacci levels overlap. In this case, it is the 0.618 level for the first market swing and the 0.786 level for the second market swing. These 2 levels sit within a 10 pip zone and this zone then intersects with the bearish trendline to produce a highly concentrated resistance zone with a high probability of price reversing from there.
These sorts of trades with these highly accurate reversal zones allow for a small stop loss to make the trade highly profitable with great Reward:Risk ratio.
In terms of a profit target, I will look to take most of the profit at the 1.31 level because this zone as seen a lot of price reaction recently. The next target from there will be the previous lows at 1.30.
You can see the current status of this trade in the chart image below and as expected, the reversal zone was very accurate and did produce a highly effective trade entry.
You can track this trade live on my Trading View profile by clicking on the link below:
Thank you for reading and I hope you learn something from this post. Go and give your charts a clean up and see if it improves your trading! You might be surprised that less is actually more 🙂