Butterfly Pattern™

“The structure of the Butterfly pattern … requires a specific alignment of Fibonacci measurements at each point within the structure. Most important, a mandatory 0.786 retracement of the XA leg as the B point is the defining element of an Ideal Butterfly Pattern and it acts as the primary measuring point to define a specific Potential Reversal Zone (PRZ). In many ways, the Ideal Butterfly Pattern is like the Gartley Pattern because it requires a specific B point retracement and possesses a tighter array of Fibonacci ratios within the structure. Specifically, the Butterfly incorporates a 1.27 XA projection with a “tame” BC projection, which is usually only a 1.618. In addition, the Butterfly usually possesses an equivalent AB=CD pattern or an alternate 1.27AB=CD pattern. Although the equivalent AB=CD is a minimum requirement, valid Butterfly structures rarely exceed the alternate 1.27 AB=CD completion point.”
Harmonic Trading: Volume One Page 151
(Copyright Scott M. Carney 2007 HarmonicTrader Press/2010 Second Ed. Financial Times Press)

The Butterfly Pattern®, The general extension structure of the Butterfly Pattern® was discovered by Bryce Gilmore. However, the exact alignment of ratios was defined in Scott Carney’s 1998 book, “The Harmonic Trader.”

This has become the industry standard for the structure. Scott’s ideal Butterfly Pattern® requires specific Fibonacci ratios to validate the structure.

These measurements include a mandatory 0.786 retracement of the XA leg at the B point, which defines a more precise Potential Reversal Zone (PRZ) and more significant trading opportunities. Also, the Butterfly pattern® must include an AB=CD pattern™ to be a valid signal.

Frequently, the AB=CD Pattern™ will possess an extended CD leg that is 1.27 or 1.618 of the AB leg. Although this is an important requirement for a valid trade signal, the most critical number in the pattern is the 1.27 XA leg. The XA calculation is usually complemented by an extreme (2.00, 2.24, 2.618) BC projection.

These numbers create a specific Potential Reversal Zone (PRZ) that can yield powerful reversals, especially when the pattern is in all-time (new highs/new lows) price levels.

Bullish

Bearish

For More Information, Access the Harmonic Trader Basic Membership – Now Available with the Harmonic Pattern TM Basic Course.

Intellectual Property Disclosure: The BUTTERFLY PATTERN TM is a Registered Trademark (2016) of Scott M. Carney.
Authorization required for all commercial FOR-PROFIT business, websites, products and services and must be obtained in writing from Scott M. Carney and/or an agent of Harmonic Trader.
For more information, please visit the TERMS AND CONDITIONS PAGE: https://harmonictrader.com/terms-and-conditions/
BUTTERFLY PATTERN TM Documentation: http://tsdr.uspto.gov/documentviewer?caseId=sn77001543&docId=ORC20080527001152#docIndex=6&page=1
Protected by International Copyright © 1998-2048 (The Harmonic Trader, Harmonic Trading: Volume One, Two, Three ©1998, 2004, 2007, 2010,2016)