Fibonacci Arcs
The next Fibonacci tool we will learn in this section is ‘Fibonacci Arcs’
Fibonacci Arcs add a time element to Fibonacci retracements. Fibonacci Arcs are half circles that extend out from a trend line. The arcs are based on the Fibonacci ratios - 38.2%, 50 % and 61.8% respectively.
For a stock in downtrend: Fibonacci Arcs are used to anticipate resistance or reversal zones for the counter-trend bounce. Fibonacci arcs are drawn by connecting swing high to possible swing low, and the required Fibonacci arcs get plotted on the chart which acts as potential points of resistance for the price. These Fibonacci arcs denote the possible points up to which stock can retrace before continuing its downward move.
Fibonacci Arcs for a stock in downtrend:
For a stock in uptrend: Fibonacci arcs are drawn by connecting swing low to possible swing high, and the required Fibonacci arcs get plotted on the chart which acts as potential points of support for the price. These Fibonacci arcs denote the possible points upto to which stock can retrace before continuing its prior up move. In the chart below the price is taking support at the 50% Fibonacci arc and then resumes its prior uptrend.
Fibonacci Arcs for a stock in uptrend:
Key points
1. For implementation of Fibonacci fans and arcs there should be a clear prior trend.
2. Fibonacci retracements, arcs and fans do not work in a sideways market.
