Once we find the high and low points in a chart and join them after selecting the tool “Fibonacci Arcs”s then, with a compass-like movement, three curved lines are drawn at 38.2%, 50% and 61.8%, from the desired point. These lines anticipate the support and resistance levels, and areas of ranging.
The major difference between Fib Retracement analysis and Fibonacci Arcs is as follows:
Fibonacci Retracement: Straight lines for retracement levels (0.382, 0.50, 0,618 without considering the time)
Fibonacci Arcs: Not straight but curved lines. Means its not only the flat retracement levels but the time is also taken into consideration in Fibonacci Arcs. In simple words Fibonacci retracements are simple mathematical calculation and considers that if the market is moving from 0 to 100 the first retracement will be from 100 to downwards to 61.8 (100-38.2) (Why 38.2: The movement of 100 multiplied by 0.382 = 38.2)
Fibonacci Arcs take into consideration the time i.e. the probability of pulling back to various Fibanacci levels goes down if the market is not able to reach that level for longer time. So while Fibonacci retacement level lines point to the same levels for possible retracements, the Arcs changes the levels (curves up or down)
See the chart in Fig 11 and Fig 12 below for illustrations.
Fibonacci Arcs Example 1