Diving into Fibonacci Retracements – Part 3

By Olley / September 9, 2021

Example 4 – Fibonacci multi confluence

The retracement is drawn from left to right (orange circles are the anchor points).

Date: from 26th June -> 18th December 2019 (each Fib anchor point).

Image 1Respecting Fib levels. Both support & resistance

Straight away when looking at the chart I can see the 0.382 zone (I’ve put a yellow box for clarity) also lines up naturally with the $9000 horizontal S&R zone.

The white arrows and green semi-circles are there to outline how price action is reacting to the corresponding Fibonacci levels. This is what I was talking about earlier, how you want to see a Fibonacci retracement being ‘respected’ by price. When I say this, I mean how price is showing bounces with conviction off of the retracement lines, as either support or resistance. This is how I know if a retracement is valid or not (this can be very subjective).

I have turned on the 0.236 level and as you can see even though it was the most shallow retracement, it was still respected well. Both as resistance on the first test, then after it had broken it acted as support indicated by the higher low and the green semi-circle. -> This is the first step when trying to decide if the chart is or is not respecting the Fibonacci levels.

[ A shallow retracement means the price has only gone as far as the 0.236 or 0.382 retracements for example. A deeper retracement is suggesting 0.5, 0.618 or even the 0.786 level sometimes (0.886 can also show up occasionally). ]

The same is evident with the 0.382 zone (marked by the yellow box). Price rejected it on the first attempt, and once it was broken, acted as support for the next higher low on the Daily.

Bitcoin temporarily took the 0.5 retracement, but didn’t see any follow-through to the upside. Rejecting twice from that area. Same as before, once the 0.382 zone had been broken, it lost the Daily structure more evidently (creating a much lower low), and the 0.382 happened to be around the local high before the March 2020 dump happened, this is outlined at the yellow box.

Image 2Daily example, with 21EMA

In this example, I have turned on the Mango Ribbon and included only the 21-period exponential moving average (EMA) for the Daily time frame.

These higher lows on the Daily coincided roughly where the 21EMA is, which also lines up with the 0.236 & 0.382 retracements acting as support (shown in ‘image 1’). But also as resistance, clearly shown when price loses the 0.382 zone (on the far right) the 21EMA is in the same area.

Finding areas of confluence with different retracements & time frames.

These images are all focussed on the same region of price, taken from the macro retracement (just above the 0.236 Fib level).

Image 3Weekly chart. Support & resistance zone at play?[December 2017 -> Jan 2020]

Above is the Weekly chart. I always like to see what the high time frames are doing to get an overall better bias for direction, then go down to lower time frames for more clarity.

You can clearly see that there is a horizontal S&R zone between $8000-8400. Interestingly, the price cleared this zone, meaning it should now act as support.

The area I am zooming into in the next charts is highlighted with the orange circle and white arrow.

Image 4Zoomed into 4hr timeframe – [ 20th Jan 2020 ]
Image 5Local Fib, 0.618 retrace zone support confluence

Using a lower time frame trigger to position for the higher time frame retracements is also a viable option you can look into. An example is above, I have zoomed down to a 4hr TF to get a clearer picture, but still have more macro retracements in mind, and on the chart.

This is an example of using two different Fibonacci retracements to find stronger zones of support & resistance, some people call these Fibonacci clusters. I use this often so I can choose zones that have a higher potential of being respected rather than just relying on a single retracement.

[ For reference of the macro retracement, the tan colour horizontal running across each chart (in the centre) is from the 0.236 level illustrated in ‘image 1’. The large yellow box is the 0.382 zone also seen in ‘image 1’. ]

Because the price is in an uptrend (on 4hr & 1day) I plot a ‘bullish retracement’, and again the orange circles show the anchor points; the swing low to the swing high for a new retracement.

In image 4, I have added some text to the chart with arrows giving simple explanations of what I am showing. The orange text is explaining how the blue horizontal S&R levels could act as triggers to get into longs once broken. As it would confirm the 0.382 retracement as a local low. It is always: ‘if this, then that’.
When paired with image 5 you can see how the 0.618 retracement is also right in the same area as the macro 0.236 level but also the 0.382 zone highlighted.

These are three different retracements all producing a Zone / Fibonacci Cluster in the same region.

Image 6Daily perspective, on top of support + key Fibonacci zone

This chart clearly shows that both previous image examples lined up with the larger time frame support level on the Daily (shown by the white dotted lines). This adds another piece of edge to the overall thesis.

Image 7Ichimoku confluence

Daily TK bullish cross, with Tenkan around the same area. Reinforcing this support level even further.

In this lengthy example I have shown many different ways you can find where potential support & resistance is located by using different time frames and simple Mango analysis techniques:
-> Macro 0.236 level.
-> Weekly S&R zone at $8000-8400.
-> Daily uptrend, forming higher highs & higher lows.
-> Daily support around $8200-8300.
-> Daily 21EMA in the same region.
-> Daily Tenkan in the same region.
-> Image 4 swing low to high Fib retracement shows 0.382 zone.
-> Image 5 retracement presents 0.618 zone at the same area.

Tips when placing Retracements:

For myself, I usually always use the wicks of candles for anchor points when plotting a Fibonacci retracement. I have found this to work better in my experience, and often it gives similar levels to if I had used a retracement with bodies anyway.

I occasionally will plot both and try to find areas of confluence by then placing a rectangle box, or horizontal lines/rays to mark them out.

As you can see both retracements plot really similar levels to each other and the difference is only slight, but you may prefer to use one over the other. You can always try out both methods yourself, but it will require some time to backtest.

Do not alternate between candle closes and wicks when plotting a single retracement.

This can completely change how a retracement turns out, so make sure you consistently use either method and don’t mix them together.
-> So if you start a retracement with the wick of a low, make sure you plot the second anchor point at a wick high as well.

All the examples I have shown in this Part have used ‘the wicks’ for anchor points. However all of them would have worked exactly the same if using candle closes instead, the retracement levels may have just been slightly different.

Fibonacci retracements summary:

  • Use higher time frame retracements in confluence with lower time frames to get a clearer sense of the overall direction.
  • Use higher time frame support and resistance levels with Fibonacci to find stronger areas of S&R.
  • You can choose to plot multiple Fibonacci retracements to create these zones of confluence, also can be called Fibonacci clusters.
  • Knowing the trend and taking trades in that same direction usually is more optimal. Getting a directional bias from a higher time frame is always a good idea.
  • Finding confluence with other indicators you may use such as Moving Averages or Ichimoku can add extra edge to your thesis. The Mango Dynamic I have found to work really well with retracements as well.
  • You can place retracements with either wicks or bodies as anchor points.
  • You can take the technical analysis concepts learnt at Mango and apply Fibonacci with it to find setups that fit your strategies to give you an extra edge.

If you have enjoyed this series so far, feel free to drop a comment below or shoot me a message in Discord. The same thing goes if you have any feedback for me, always happy to improve. Thanks for reading!

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  • Mauk says:

    Nice job Olley πŸ˜€

  • paul the carpenter says:

    really enjoying and benefitting from this article- super appreciated Olley!

  • ben says:

    Super education ! Thanks Olley

  • IslandEyeTT says:

    Very beneficial series on Fibonacci retracement and extension tool! Thank you Olley!

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