Here are three solid, relevant papers and technical resources about FANUC alarm 366 (and related servo/encoder/alarm diagnostics):

A weakening photo-diode inside the encoder or a failing cable can cause the signal amplitude to drop below readable levels. Cabling Issues:

1. The Technical Definition

: Move the drive to another axis. If the fault follows the drive, the amplifier is the issue. If it stays with the original axis, the problem is likely the cable or motor/encoder. Check Parameters