Fibonacci Arc - Technical Analysis Indicator

Fibonacci Arc Definition

Fibonacci arc is a technical analysis indicator used to provide hidden support and resistance levels for a security.  A fibonacci arc is constructed by first drawing a trend line between two swing points on a chart.  These two points should be between a clear peak and trough on the chart.  Once the line is drawn, key fibonacci levels are placed on the chart at 38.2%, 50%, and 61.8% retracement levels.  An arch is then drawn at each respective level to generate the arching angles on the price chart. 

Trading with Fibonacci Arcs

Breakouts

Trading with fibonacci arcs is done by first identifying the key fibonacci arc levels.  The next step is to monitor how the stock performs at these key levels.  If the stock breaks above both a recent price high and an arc resistance level (38.2%, 50% or 61.8%), a buy order should be placed.  Traders should then look for the next higher fibonacci arc level to lock in profits, or sell the position outright.

Reversals

Another popular method when trading fibonacci arcs is to look for a failure at fibonacci arc levels.  Since arc levels are not followed by many traders, these are considered as "hidden" levels on the chart.  For example, a trader can wait for a break above the 61.8% retracement level and then close back above the arc.  A short position should be entered after a move below this reversal bar.

Fibonacci Arc Trading Example

Below is a fibonacci arc trading example, courtesy of VT Trader.  This example is on a 30-minute level over a two-day period.  Notice how a trough and peak are used on the chart to draw the trend line which the fibonacci arcs are based upon.  Then notice how as the price reacts from the peak it sells off sharply down to the 61.8% arc retracement level.  This hidden arch level initially acted as support, but as the EUR/USD closed below the arc level, it eventually became resistance.