What is Butterfly Pattern ?
Butterfly Pattern is the mostly found Harmonic Pattern in the Forex Market. Butterfly Pattern is the Harmonic Pattern that tends to experience a strong reversal and follows the setup after the pattern is finished. This pattern is so named because the pattern looks like a butterfly. This pattern is easier for the successful Forex traders and investors because its shape and structure are similar to the wings of butterfly and so the traders can easily spot this pattern. The Pattern is very important for the traders and investors because it is about 75% accurate and so is more accurate than the Gartley Pattern. The outcome of this pattern has been better than the Gartley Pattern in back testing for many years by Fxstay Team.
Structure of the Butterfly Pattern
At the extensions of XA and BC, Butterfly Patterns complete and so point D in this pattern is the highest or lowest point according to bearish or bullish Pattern.
As you can see in the figure below that the point D is the highest or lowest in this pattern and can be rewarding for you if you have opened a position at right time and at right price.
Confirmation of the Butterfly Pattern In Forex Trading
Identification of this pattern requires the traders and investors to watch the pattern carefully. Confirmation of the pattern is required for the traders before they actually take a decision to utilize the predicted trading opportunity. The last side of the pattern is CD and for a pattern to be confirmed as a Butterfly Pattern, the last side (CD) should extend longer than the first side (XA). If the last side (CD) is shorter than the first (XA) then it is an invalid pattern.
This pattern can be observed at significant highs and lows. Failure of this pattern may signal strong continuation move. An example of a Butterfly Pattern on the Forex chart can be seen in the figure below.
As you can see in the figure above that the Pattern is formed by the points A, B, C and D and are preceded by XA. This pattern is confirmed Butterfly Pattern because side CD is longer than the side XA.To lean more about Harmonic Patterns you can visit Fxstay Forex Education School .