Introduction
Have you ever heard of Fibonacci Arcs? If not, you are in for a treat! In this article, we will explore the magical world of Fibonacci Arcs, their origin, and how they are used in trading. Fibonacci Arcs are a technical analysis tool used by traders to identify potential levels of support and resistance in the financial markets. These arcs are based on the Fibonacci sequence, which is a series of numbers where each number is the sum of the two preceding numbers.
The History of Fibonacci Arcs
The Fibonacci sequence was discovered by the Italian mathematician Leonardo Fibonacci in the 13th century. Fibonacci Arcs, on the other hand, were developed much later in the 20th century by the famous trader W.D. Gann. Gann was a successful trader and author, who used a combination of technical analysis and astrology to predict market movements.
What are Fibonacci Arcs?
Fibonacci Arcs are a set of three curves that are drawn based on the Fibonacci sequence. The arcs are drawn from a swing high to a swing low, with the first arc starting at the swing low and extending to the 23.6% Fibonacci level. The second arc starts at the same swing low and extends to the 38.2% Fibonacci level, and the third arc starts at the same swing low and extends to the 50% Fibonacci level.
How are Fibonacci Arcs Used in Trading?
Fibonacci Arcs are used by traders to identify potential levels of support and resistance in the financial markets. When the price of an asset approaches one of the Fibonacci Arcs, it is considered a potential level of support or resistance. If the price breaks through the arc, it could indicate a trend reversal.
Examples of Fibonacci Arcs in Trading
Let’s take a look at some examples of Fibonacci Arcs in trading.
Example 1: Apple Inc.
In this example, we can see that Apple Inc. (AAPL) has been trading in an uptrend since 2021. We draw the Fibonacci Arcs from the swing low in January 2021 to the swing high in November 2023. We can see that the price of AAPL has found support at the 23.6% and 38.2% Fibonacci levels multiple times.
Example 2: Bitcoin
In this example, we can see that Bitcoin has been trading in a downtrend since the beginning of 2023. We draw the Fibonacci Arcs from the swing high in January 2023 to the swing low in August 2023. We can see that the price of Bitcoin has found resistance at the 23.6% and 38.2% Fibonacci levels multiple times.
Conclusion
In conclusion, Fibonacci Arcs are a powerful tool used by traders to identify potential levels of support and resistance in the financial markets. These arcs are based on the Fibonacci sequence, which is a series of numbers where each number is the sum of the two preceding numbers. When the price of an asset approaches one of the Fibonacci Arcs, it is considered a potential level of support or resistance. Fibonacci Arcs are just one of the many technical analysis tools that traders use to make informed trading decisions.
