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Fibonacci Arcs are percentage arcs based on the distance between major price highs and price lows. Therefore, with a major high, major low distance of 100 units, the 31.8% Fibonacci Arc would be a 31.8 unit semi-circle.
The chart below of the S&P 500 exchange traded fund (SPY) shows an example of a Fibonacci Arc:
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As is seen in the chart above, after the significant bear market, the rally was stopped by the 50% arc; the 50% arc retracement acted as resistance (see: Support & Resistance). The S&P 500 then used the 38.2% arc as support, bouncing between the 50% arc and the 38.2% arc for many months.
After price broke through the resistance arc at 50%, price moved up to the next significant Fibonacci ratio, 61.8%, where it found a new resistance level. The prior resistance level at 50%, after being broken, became a new support level. The next Fibonacci arc was at 100%, where price met resistance.
Yet another helpful Fibonacci tool is the Fibonacci Fan, discussed on the next page.
- Fibonacci Fans |
