|
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.
|
