I use Fibonacci price clusters to both identify key support or resistance decisions…..AND to define my risk. Let’s take a look at an example in $MDLZ ($30.75, up $0.09).
In this stock I have a few price decisions that are illustrated on the chart. At this point, we are testing the first price cluster zone of support at the 30.43-30.66area. Since support is currently holding, I can now look for a buy trigger that suggests it is worth placing a bet against the price cluster zone.
My risk on this trade can be defined below the low end of the cluster. If it starts to play out, target 1 comes in at 33.54. Target 2 comes in at 34.34.
I will consider myself wrong this trade if the cluster zone is taken out on the downside. For more information about trigger entries, please refer to this document on my site.