The butterfly harmonic pattern is a new approach to technical analysis, which often helps traders earn profits. This article is a complete guide to understanding the concept and how you can profit from it.
XA: This is the first step that sets that pattern. This movement does not necessitate any special rules.AB: The butterfly pattern’s most significant level is the B point, which should retrace 78.6 percent of the XA leg.BC: Either the 38.2 percent or 88.6 percent retracement of the AB move should be used for the BC move.CD: If BC is 38.2 percent of AB, a CD will likely achieve BC’s 161.8 percent extension. On the other hand, a CD is likely to reach the 261.8 percent extension of BC if BC is 88.6 percent of AB.AD: The overall AD move, which consists of AB, BC, and CD, should be 127.0 percent or 161.8 percent of XA.
– Enter your trade – Determine where the pattern will end at point D, at 127 percent of the X-A leg’s extension. Usually, the traders place a long entry.– Set your stop-loss order – Set your stop-loss immediately below the X-A leg’s 161.8 percent Fibonacci extension.– Determine your profit target – With this pattern, where you position your profit target is highly variable and relies on your trading objectives and market conditions.
– Enter your trade – Execute your sell order at point D, the 127 percent Fibonacci extension of the X-A leg, to trade a bearish butterfly pattern. Usually, the traders place a short entry.– Set your stop-loss order – Set your stop-loss immediately above the X-A leg’s 161.8 percent extension.– Determine your profit target – Position your profit target at point A (aggressive) or point B (conservative).
- Butterfly patterns are simple to recognize and grasp.- When compared to other chart patterns, butterfly patterns can provide powerful indicators.- According to empirical examples, the butterfly pattern is one of the most effective techniques to spot profit opportunities.