The Butterfly is another form of Gartley patterns. It was discovered by Bryce Gilmore and Larry Pesavento. This pattern usually forms near the extreme lows and highs of the market and foretells a reversal.
The main special thing about the Butterfly pattern is that CD extends beyond XA.
Here are the key parameters of a Butterfly pattern:
- Point B is at up to 78.6% retracement of XA.
- Point C can be at the 38.2%-88.6% retracement of AB.
- Point D can be found at the 161.8%-261.8% extension of AB or at the 127.2%-161.8% extension of XA. The difference from a Gartley pattern is that D is not at the retracement of XA but at its extension.
How to trade Butterfly pattern
- The entry is at the point D, which is a potential reversal zone.
- Take Profit may be at 61.8% of CD (TP1), and/or at 127.2% of CD (TP2). You can also target points B (a conservative approach) and A (an aggressive approach).
- Put a Stop Loss in line with your rules of risk management.
Here the example of a bearish Butterfly pattern.
The point B is at the 78.6% retracement of XA. The point C is at the 76.8% retracement of AB. The point D is at the 127.2%-161.8% extension of XA.
2020-03-23 • Updated
Other articles in this section
- Fibonacci Ratios and Impulse Waves
- Guidelines of Alternation
- What is a triangle?
- Double Three and Triple Three patterns
- Double Zigzag
- Zigzag and Flat patterns
- Advanced techniques of position sizing
- What does ‘truncation’ mean?
- What is an extension?
- Ending Diagonal Pattern
- How to trade gaps
- Leading diagonal pattern
- Wolfe waves pattern
- Three drives pattern
- Harmonic patterns
- What is an impulse wave?
- Motive and corrective waves. Wave degrees
- Intoduction to Elliott Wave analysis
- How to trade breakouts
- Trading Forex news
- How to place a Take Profit order?
- Risk management
- How to place a Stop Loss order?
- Technical indicators: trading divergences