Basically, there are 4 types of common Fibonacci measurements used in harmonic trading: Internal Price Retracements, External Price Retracements, Price Expansion and Price Projections (APP).
Using combination of retracements, projections and extensions we can build a Fibonacci cluster, also referred to as Fibonacci confluence, convergence or Potential Reversal Zone. The closer and more lines from different measurements, the stronger PRZ - meaning higher probability that the cluster will work as support or resistance level and will allow a trader to enter into low risk and high probability trade.
Fibonacci Measurements methods used to define the PRZ are described in details here-> Defining Potential Reversal Zone for the Gartley pattern
In case of the 121 pattern we look for AB=CD and for a minimum of two Fibonacci price relationships (internal retracements for XA swing and XC swing) coming together with a relatively tight range. When a price enters the PRZ we expect that this area will stop the prior market move and act as Support or Resistance. We observe the price behavior at this level, a trigger that will tell us to enter the market.
Similar to Fibonacci price measurements we also work on Fibonacci time measurements. Time clustering will allow us to identify the time when the price is likely to hit the support/resistance level and retrace.
For more info about 121 / One2One pattern and the confirmation methods see -> 121 - table of content
Last edited by Admin; 08-08-2012 at 01:45 PM. Reason: Defining Potential Reversal Zone for the 121 pattern - Updated
Great to see this finally.
Thanks for sharing with us.