Fibonacci Arcs
Fibonacci arcs are curved support and resistance guides drawn from two significant price points. The arcs are based on Fibonacci ratios and are used to estimate potential turning points where price and time both matter.
Construction
- Choose a swing low and swing high.
- Measure the distance between the two points.
- Draw circular arcs with radii based on ratios like 0.382, 0.5, and 0.618 of the distance.
Interpretation
The arcs act as dynamic levels that price may respect as it rises or falls. The curve implies that the expected level shifts over time, which is useful when trends evolve.
Use cases
- Combine arcs with trend lines or horizontal levels.
- Use an arc as a zone rather than a precise line.
- Look for confirmation signals when price reaches an arc.
Example
Price rallies from a swing low to a swing high. The 0.618 arc curves upward. Later price pulls back and touches the arc during consolidation. A trader views this as a potential support zone and waits for a reversal signal.
Limitations
Different traders can pick different swing points, which changes arc placement. Arcs are better used as context rather than a strict trigger.
Practical checklist
- Define the time horizon for Fibonacci Arcs and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Fibonacci Arcs as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Fibonacci Arcs, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.
Risk management notes
Risk control is essential when applying Fibonacci Arcs. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.
Variations and related terms
Many traders use Fibonacci Arcs alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.
Practical checklist
- Define the time horizon for Fibonacci Arcs and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Fibonacci Arcs as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Fibonacci Arcs, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.
Risk management notes
Risk control is essential when applying Fibonacci Arcs. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.
Variations and related terms
Many traders use Fibonacci Arcs alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.
Practical checklist
- Define the time horizon for Fibonacci Arcs and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Fibonacci Arcs as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Fibonacci Arcs, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.