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Fibonacci Arcs represent curves, which serve as potential support and resistance lines on the Forex chart. Fibonacci Arcs were notedly popularized by a well-known Forex trader, financier and founder of the wave theory Ralph Nelson Elliott.
Fibonacci numbers represent subsequent row of numbers 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and so long up to infinity. Secret of this row is that every subsequent number is related by the previous according to a certain ratio. At present, the best known Fibo coefficients are: 4.235, 2.618, 1.618, 0.618, 0.382, 0.236.
Building
To proceed to building of Fibonacci Arcs in MetaTrader 4 trading terminal, you need to choose “Insert - Fibonacci – Arcs” in the toolbar. Further on the chart you need to mark two points on extreme points of the price (top - bottom, top - top, bottom – bottom and bottom- top). The second extreme point serves as the center of Fibonacci Arcs, whereas the rest curves are rendered according to Fibo proportion. Lines are put by a half-circle. If in “Properties” of Fibo Arcs you put the tick on front of “ellipse”, lines will take the correspondent geometrical form.
But marking two points are not enough for drawing Fibonacci Arcs. Apart from selection points, you need to indicate the scale. The scale is the relation of pips number of vertical axis to the number of bars of horizontal axis of the object. Those acquainted with Gann Forex methods should take the same scale they chose for angles. The scale for each instrument should be taken by selection. Usually for time-frame H1 the scale is equal to 1 – 2 for 4 digits or 10-20 for 5 digit quotes.
Let's consider the example of Fibonacci Arcs' operation on the chart. The scale is: 20 (5 digits).
Pic. 1 Fibonacci Arcs
With the correct scale selected, error of level practice is minor. Of course, Fibo levels not always can work, even if the scale is correct. This is the market and it has its own view. But often the extent of precision is astonishing. Many traders applying Gann methods successfully combine Fibo Arcs with other coefficients.
Conclusion
Fibonacci Arcs are a very interesting instrument, not least because they can predict future objectives. They serve as spatial expansions and corrections, work as resistance and support, and one more time prove mathematical nature of the market. Besides, combination of Fibonacci Arcs with other technical and graphical instruments allow to forecast not only about price objectives, but about time objectives as well.
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