The Ideal Butterfly Pattern

The structure of the Butterfly pattern was discovered by Bryce Gilmore. In my experience, I believe an Ideal Butterfly Pattern, which requires specific Fibonacci ratio to define the structure - including a mandatory 0.786 retracement of the XA leg as the B point - offers more precise Potential Reversal Zones (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.



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