The concept of Overlapping Fibonacci in forex trading is one that most traders come to after having used Fibonacci for some time.
Typically, they will be using Fibonacci retracements or extensions looking
for a confluence of a Fibonacci level with other signals such
as support and resistance, pivots etc. The idea of overlapping Fibonacci
is likely to be an exciting discovery. Why?
Because very often that is all you need in order to trade: two strong
Fibonacci levels at an area of known support and resistance
for example, will very likely yield some kind of usable reaction. Many
traders find the simplicity of this strategy appealing, and use nothing else in their trading.
As usual, giving chart examples will probably be the best way to illustrate the concept.
Take any chart with a reasonable run up or down in price, combined
with several moderate retracements along the way, and just start drawing
Fibonacci on that chart:
The above example shows two sets of Fibonacci drawn in a strong
downtrend. The yellow Fibonacci lines are a result of drawing from
the high at the top left of the chart and down to the swing low
indicated by the first white circle. The blue Fibonacci lines are a
result of drawing fibs from a lower swing high (that coincidentally
formed a double top) to the same swing low as that of the yellow
Fibonacci.
You can see two possible entries at the confluence of the yellow
Fibonacci 38% retracement level, combined with the blue
Fibonacci retracement level of 79%.
The above chart shows a similar situation in an uptrend. Again, the
white circle indicates an opportunity to enter on a bullish
engulfing candle pattern at the confluence of the 79% and 38%
retracement levels.
Note that the confluence can consist of any of the Fibonacci retracement levels, from 38% to 50% to 62% to 79%.
There is also the opportunity to take trades based on confluences that occur at Fibonacci extension levels,
and the process for arriving at those confluence identifications is the
same: on any chart draw Fibonacci lines (with extension levels
enabled) and look for levels that overlap.