Fibonacci Arcs are half circles that extend downward from the top of a base line drawn between the session high and low. These arcs intersect the base line at the 23.6%, 38.2%, 50.0%, and 61.8% Fibonacci retracement levels and represent areas of potential support and resistance.
After an increase, Fibonacci Arcs are measured using a Base Line that connects from trough to peak. Arcs are drawn along this line with radii that measure .382, .50 and .618 of the Base Line. These arcs mark potential support or reversal zones to watch as prices pullback after the advance. After a decline, Fibonacci Arcs are used to anticipate resistance or reversal zones for the counter-trend bounce.
1. Support Example
Acting as a support role usually occurs after an advance. A Base Line after a rise extends from peak to trough at an angle that is dependent on elapsed time (positive slope). Chart 1 shows the EUR/USD’s daily price action with the Fibonacci Arcs, marking two supports on declining. Thereby, Fibonacci Arcs can be used to predict a support level after an advance move.
2. Resistance Example
On the other hand, being a potential resistance usually occurs after a decline. A Base Line after a decline extends from trough to peak at an angle that is also dependent on elapsed time (negative slope). Chart 2 shows the EUR/USD ‘s daily price action with the Fibonacci Arcs, underscoring three resistance levels on rallying. Fibonacci Arcs, hence, can be used to predict a resistance level after a pull-back move.
Since there is no single indicator is perfect to predict price action, investors are suggested to combine some other tools to confirm support, resistance, bullish reversals and bearish reversals.