Taking Advantage of Fibonacci Arcs
Fibonacci retracements and extensions have become so popular amongst traders due to their consistent and accurate predictions of trends and resistance and support lines. Since the conception of Fibonacci retracement, a number of variations have been developed that essentially take advantage of the very same information and ratios but present the results in a slightly different way. These variations also produce different types of indication and this is also why they have been developed. One such variation is the Fibonacci Arcs which are similar to the retracements except they portray the ratios in and arced fashion. This serves to provide information for traders on entry and exit strategies and also displays helpful trading ranges.
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The Fibonacci retracement is one of the most powerful tools available to a trader and it is no surprise that slightly different versions have been created, such as the Fibonacci arc. All of them produce information based on Fibonacci numbers and the main function of each is to display clear and accurate resistance and support lines for traders to judge target price strategies. However, the Fibonacci arc goes one step further and helps to produces information on trading ranges that can also be useful for placing small trades because they show an area where a price might trade within.
Fibonacci replacements and arcs remain a mystery in the world of trading and there is no logical reason why these ratios should have any impact on finance. For this reason it is generally considered that in fact there is no connection between the ratios and finance but because traders use the retracements and arcs they tend to abide by its rules. For example, if the Fibonacci arc suggests there will be a strong resistance point at the 61.8% ratio, the likelihood is that as the price nears this resistance, lots of traders will begin to sell because they all believe it will hit the resistance and go back down. Inevitably this does happen because all traders will create selling pressure due to the psychological impact of the Fibonacci arc resistance line. In essence the Fibonacci arcs and retracements serve as self-fulfilling prophecies but regardless of the reasons the Fibonacci arcs still work very successfully.
The Fibonacci Arcs work in almost exactly the same way as the retracements. Firstly, a trader needs to find a suitable high and low point over a long range. Once these are selected the Fibonacci arcs will spread out over the candlestick charts at the ratios of 38.2%, 50% and 61.8%. Unlike the horizontal lines created by the retracement, these are unsurprisingly curved but they do the same job. With these three curved ratio lines, a trader can anticipate likely support and resistance levels and with these a trader can make accurate price targets for the future. Because the Fibonacci arcs are arc shaped they collectively form reliable trading ranges. A price is likely to trade within these arcs and with this information a trader can make small gains based on the price moving back and forth within the range.
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