Dollar: Yen looks as though it might become an example of the cluster zone strategy I outlined in yesterday’s Fibonacci projection video
This set up has the following features:
- The Fibonacci analysis has been applied to the sort of strong, high momentum trend that tends to produce the best results for this type of strategy
- So far, this up trend looks to have an easy to read swing pattern or wave count. This is also a favourable situation for this kind of analysis
- Under this scenario we may now be in the 5th and final swing of an impulsive advance. These 5 swings are outlined by the blue numbers on the chart. This whole 5 swing advance looks very like it could be the 3rd swing of a bigger move which is outlined by the black numbers.
- If things continue to behave according to the text book, the end of the next blue swing would see a correction of the whole advance from black “2”. A correction of this size provides decent risk: reward possibilities for a strategy that can identify and entry point for short positions close to the end of the current swing
- The Fibonacci cluster zone shown on the chart consists of:
- 161.8% external retracement of 3 to 4
- 38.2% projection of the advance from “black 2″ to ” blue3″ beginning from 4
The Fib. cluster zone does not predict that the market will stop at this level. The strategy involves selling if price does happen to make a trend peak at or close to the cluster zone.
If there is a setup, a typical stop loss strategy would be to place the initial stop just above the trend peak that triggers the set up.