Today in this article we are gonna talk about butterfly pattern in forex trading. The butterfly pattern on our website is one of the best indicators out there. We recommend you to download the indicator from our website as it has a high accuracy which will help make more profit.
Butterfly Pattern Forex Indicator
It is completely free of cost and can be downloaded easily from our website. The butterfly pattern is basically a harmonic pattern which was discovered by Bryce Gilmore and Larry Pesvento. Many trades believe that butterfly patterns provide more significant trading opportunities. The butterfly pattern is one of the very effective harmonic patterns. Butterfly pattern makes very good short selling signals with excellent risk and reward ratio. The butterfly pattern consists of two variants which are listed below:
- Bullish butterfly pattern (Trans reversal pattern)
- Bearish butterfly pattern (Trend reversal pattern)
1. Bullish Butterfly Pattern
First we are gonna be talking about the bullish butterfly pattern. It is clear from its name that when the bullish butterfly pattern will come the market is gonna go up. Bullish butterfly pattern is a trans reversal pattern. The Market’s possibility of going up increases when the bullish butterfly pattern will come. From here a question raises in our mind that how is this gonna work? For that we have to see the rules of this pattern. As I said earlier in this article that the bullish butterfly pattern is a trans reversal pattern this means that when this pattern will come no matter in which state the market is it is gonna change. If we talk about a bullish butterfly pattern the market will obviously be going down before the arrival of the bullish butterfly pattern. If the market is going down then only the bullish butterfly pattern will come then we would be able to say that the marker is gonna go up now.
When we talk about the accuracy of the bullish butterfly pattern the fifth impulse wave made in the elliott wave will usually be visible to you which makes this pattern an accuracy capable pattern. The third most important thing is the more accurately you put it the more accurate its result will be and you would be able to make accurate profit plus it will enable you to trade accurately. So it is clear that the most important thing is to put it accurately. Profit will come automatically.
b. How it works
Let’s get into the basics of how the bullish butterfly pattern is gonna work. As it can be seen in the above image it starts from X which means you need a low point of the market and you have to put X where the market went down or made a low point. After putting X on a low point now extend it to point A. This means the market is gonna go from X to A. This step has no rules. You only need a low point and a high point. X will be on low point and A will be on high point. Now it’s time to put B. As A is present in high point B will be placed on a low point because B should go down. It should be retracted but how much?
According to the rule B should be retrace D up to 78.6%. From A to B it should retrace D upto 78%. Now let’s move on to point C. C is very important. There are two conditions for C. Which are that C can be retraced up to 88.6% any one of the above percentages will be acceptable but there will be a problem for D. After moving on to D a question arises in our mind that where will we put D. As I said that C decides D. If point C`s retracement is 88.6%. Then D`s retracement will be 261.8%. So it is clear that the more C goes up the more D will be down. Now let’s talk about another condition if the retracement made by X and A is starting from where D got down, that retracement should be 127% to 161.8%. It is not important to get the exact percentage as the figure is not gonna be exact. If we go out to find one. But the percentage should be near to 127% to 161%. Now if all of these conditions match this makes a bullish butterfly pattern.
2. Bearish Butterfly Pattern
Now let’s talk about the Bearish butterfly pattern which is a trend reversal pattern. The bearish butterfly pattern is completely opposite to the bullish butterfly pattern. The things you learned in bullish butterfly pattern will now be applied oppositely. There are no complications in bearish butterfly pattern also once you understand this pattern then you won’t face any issues. In the starting you may face some problems when applying it on the chart. Remember that practice makes a man better that’s why when you will practice more it will be easy for you to notice it. The main thing is to notice it. Sometimes it may be in front of you on the chart but you won’t be able to notice it for that purpose you need to practice. Now let’s talk about the conditions keep in mind that the conditions of the bullish butterfly pattern are contrary to that of the bullish butterfly pattern.
Bearish butterfly pattern is also called XABCD. Now we have to apply this XABCD and for applying this we must have knowledge of fibonacci.
a. How it works
Before we learn about how the bearish butterfly pattern is gonna work, first we should know how to apply the bearish butterfly pattern. One of the rules of the bearish butterfly pattern states that the market must be up. The market should be bullish then only a bearish butterfly pattern is gonna work. So now let’s consider that the market is up. Now you have to take X on a high point and A on a low point as shown in the above image. There is no specific rule for this step, only the market should be up. After putting a high point and a low point now you have to put B. From now conditions will come into effect.
The condition is that B should be 78.6% retraced. Which is that it should be retraced upto 78.6%. You don’t have to do any negotiation for B. It should look exact or near to the percentage in the rule which is 78.6%. B must be accurate. So you just can`t put it more than or less 78.6% you can make a little bit of change like 77% or 79% but cant make big changes like increasing it to 90% or decreasing it to 60%.
The more accurate it is, the more benefit for you. After B now comes C. C has two conditions. It should go 38.2% or 88.6% down. If you are able to find one of these you can put C there. Now lets move on to D it should go up. Going up of D will be specified by C`s going down. If C went 38.2% down then D will go 161.8 % up but if C went 88.8% down then D will go 261.8%. Accuracy for C and D is not as important as for B. This makes a bearish butterfly pattern.
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