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TTM Trader's Guide: Fibonacci Arcs/fibonacci Circles

This document provides an overview of Fibonacci arcs, including: 1) Fibonacci arcs represent potential support and resistance levels drawn as half circles extending from a baseline connecting a high and low price point. The arcs intersect the baseline at Fibonacci ratios. 2) Fibonacci arcs account for both price and time, with wider arcs indicating a longer baseline. They are used to identify potential pullback levels in trends. 3) The document explains how to calculate and draw Fibonacci arcs on a chart and compares them to Fibonacci retracements. Limitations are that arcs only suggest support/resistance without guarantees.

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Kirankumar Bekkam
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131 views

TTM Trader's Guide: Fibonacci Arcs/fibonacci Circles

This document provides an overview of Fibonacci arcs, including: 1) Fibonacci arcs represent potential support and resistance levels drawn as half circles extending from a baseline connecting a high and low price point. The arcs intersect the baseline at Fibonacci ratios. 2) Fibonacci arcs account for both price and time, with wider arcs indicating a longer baseline. They are used to identify potential pullback levels in trends. 3) The document explains how to calculate and draw Fibonacci arcs on a chart and compares them to Fibonacci retracements. Limitations are that arcs only suggest support/resistance without guarantees.

Uploaded by

Kirankumar Bekkam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 14

TTM Trader’s Guide: Fibonacci

arcs/Fibonacci circles
Nolan Mayersky
Follow
Jan 16 · 7 min read

Welcome to the first article of the To The Moon Traders Guide


series! In this series, we will be covering various aspects of
technical analysis. This series will also feature video content
which will be released in the coming weeks! So, be sure
to subscribe to our e-mail notifications and YouTube
channel and stay tuned!

Since I have been into Fibonacci Arcs lately, they will be the first
indicator to be covered in our series.

Fibonacci Arcs
What is a Fibonacci Arc? Fibonacci arcs are half circles that
extend outward from a line connecting a high and low, called
the base line. These arcs intersect the base line at the 23.6%,
38.2%, 50%, 61.8%, and 78.6%.

Fibonacci arcs represent areas of potential support and


resistance. The arcs are based on both price and time as the arcs
will get wider the longer the base line is, or narrower the shorter
it is.

Fibonacci arcs are typically used to connect two significant price


points, such as a swing high and a swing low. A base line is
drawn between these two points and then the arcs show where
the price could pull back to, and potentially bounce off of.

 Fibonacci arcs are created by drawing a base line


between two points. I typically use the high and low of
a trend.

 Arcs can be used on any time frame. I prefer them on


the 5 minute, 15 minute, 1 hour, 4 hour and 1 day
though.

 Fibonacci arcs generate dynamic support and


resistance levels that change over time as the arc rises
or falls. The support and resistance level indicated by
the arc changes slightly with each passing period.

 The wideness of an arc is a function of both the


distance and time a base line covers. The longer the
base line the wider the arcs.

 The base line is typically drawn between a significant


high and low point, but could also be drawn between
significant closing prices to see areas between those
two points which could be important in the future.
 Fibonacci arcs are based on Fibonacci numbers,
which are found throughout nature and some believe
help forecast financial markets.

The Sequence and Ratios


This article is not designed to delve too deep into the
mathematical properties behind the Fibonacci sequence and
Golden Ratio. There are plenty of other sources for that detail. A
few basics, however, will provide the necessary background for
the most popular numbers. Leonardo Pisano Bogollo (1170–
1250), an Italian mathematician from Pisa, is credited with
introducing the Fibonacci sequence to the West. It is as follows:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610……

The sequence extends to infinity and contains many unique


mathematical properties:

 After 0 and 1, each number is the sum of the two prior


numbers (1+2=3, 2+3=5, 5+8=13 8+13=21 etc…).

 A number divided by the previous number


approximates 1.618 (21/13=1.6153, 34/21=1.6190,
55/34=1.6176, 89/55=1.6181). The approximation
nears 1.6180 as the numbers increase.

 A number divided by the next highest number


approximates .6180 (13/21=.6190, 21/34=.6176,
34/55=.6181, 55/89=.6179 etc….). The approximation
nears .6180 as the numbers increase. This is the basis
for the 61.8% retracement.

 A number divided by another two places higher


approximates .3820 (13/34=.382, 21/55=.3818,
34/89=.3820, 55/=144=3819 etc….). The
approximation nears .3820 as the numbers increase.
This is the basis for the 38.2% retracement. Also, note
that 1 — .618 = .382

1.618 refers to the Golden Ratio or Golden Mean, also called Phi.
The inverse of 1.618 is .618. These ratios can be found
throughout nature, architecture, art, and biology.

….the proportion of .618034 to 1 is the mathematical basis for


the shape of playing cards and the Parthenon, sunflowers and
snail shells, Greek vases and the spiral galaxies of outer space.
The Greeks based much of their art and architecture upon this
proportion. They called it the golden mean.

William Hoffer from the December 1975 issue of Smithsonian


Magazine:
How to Calculate Fibonacci Arcs
There is nothing needed to calculate a Fibonacci arc, although,
here are steps and examples to help understand how they are
drawn. Charting software will draw Fibonacci arcs for you.

1. In an uptrend, connect the most recent swing high (A)


with a significant prior swing low (B). This is the base
line.

2. If the base line goes from $10 to $20, the base line is
$10 long, for example. The arc will intersect at 23.6%,
50% and 61.8% of that, plus any other levels
mentioned above. For example, 23.6% of $10 is $2.36,
so the arc will intersect at $20 — $2.36 = $17.64 on
the chart. The 50% level will be at $15.

3. Once the level is found that intersects the arc, draw a


perfect circle using point A as the anchor. For
example, visualize using a drawing compass. The
pencil starts at the 23.6% level, and the anchor would
go at point A. Spin the compass to draw a full or half
circle. If drawing a half circle, they only need to go up
to point A. Do the same thing for the other percentage
levels.

4. The process is the same for a downtrend. Connect a


swing low (A) to a swing high (B) to form the baseline.
This time, calculate the intersection point by taking
the percentages of the base line in dollars and then
adding them to A. Draw arcs that intersect at the
percentages (23.6%, 50%, and so on) of the baseline,
and use A as the anchor for drawing the circles.

Below is a very basic example of how the Fib arcs are plotted.

 Base Line: A line from point A to point B

 First Arc: 0.236 of Base Line.

 Second Arc: Radius = .382 of Base Line

 Third Arc: Radius = .500 of Base Line

 Fourth Arc: Radius = .618 of Base Line

 Fifth Arc: Radius = .768 of Base Line

 Six Arc: Radius = 1 of Base Line

 Seventh Arc: Radius = 1.618 of Base Line

 And so on… My chart below goes all the way to 4.618


of the base line.
The first step is to pick the peak and trough for the Base Line.
Draw the line from trough to peak for an advance or from peak
to trough for a decline.

The example above shows Bitcoin (BTC) with a Base Line from
trough to peak. The radius for the first Fibonacci Arc measures
23.6% of the Base Line. The radius for the second Fibonacci Arc
is in the middle of the Base Line (38.2%). The radius for the
third Fibonacci Arc measures 50% of the Base Line.
The arcs on Trading View extend out all the way to 4.618. Below
is a zoomed out view of the full chart.
What Does the Fibonacci Arc Tell
You?
Fibonacci arcs account for both time and price when showing
potential support and resistance areas.

The arcs are derived from the base line that connects a high and
a low. The half circle arcs show where the price may find
support or resistance in the future. Following a price rise, the
arcs show where the price could pull back to before starting to
rise again. Following a price decline, the arcs show where the
price could rally to before starting to fall again.

Arcs are considered dynamic support and resistance levels


because the arc will be at a slightly different price as it curves
through each passing period of time.

Since arcs provide potential support and resistance at different


levels over time, the indicator infers that pullbacks that occur
very quickly could be more severe (in dollar terms) than
pullbacks that take a longer time to occur. For example,
following an upward move, the arcs will rise over time, meaning
the respective support levels for the ensuing pullback also rise
over time.

Fibonacci Arcs vs. Fibonacci


Retracements
Fibonacci Retracements align with Fibonacci Arcs at the
baseline intersection points. If you draw Fibonacci Arcs and a
Fibonacci Retracements with the same baseline, the
Retracement level will align with where the Arc intersects the
base line.

For example, both 23.6% levels should be at the same price on


the chart. Fibonacci retracements are horizontal levels, meaning
they stay fixed over time. Arcs are only at the intersection point
once.
For every other period, they will be moving based on the radius
of the arc. Retracement levels are static, while Arc levels are
dynamic.

Limitations of Using Fibonacci


Arcs
Fibonacci arcs are meant to highlight areas of possible support
and resistance, but there are no assurances the price will stop or
reverse at these levels. Also, since there are multiple arcs, it is
not evident in advance which arc will provide
support/resistance, if any.

Fibonacci arcs are often combined with other forms of technical


analysis, such as chart patterns and technical indicators.

Traders might use Fibonacci arcs to identify potential areas of


support and resistance, but wait until the price pauses and then
begins to reverse off the level (starts moving back in the
trending direction) before making a trade in the trending
direction.

Be sure to follow me, join the official To The Moon Telegram


Group, subscribe to our mailing list for notifications (in the
right sidebar), and follow/sub us on Twitter & YouTube!

Original post at: https://tothemoon.blog/trading/ttm-


traders-guide-fibonacci-arcs-fibonacci-circles/
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WRITTEN BY

Nolan Mayersky
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Developer and blogger. Cross posting our articles from my blog @
https://tothemoon.blog/

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