AUD/USD Bearish Butterfly Pattern: High-Probability Short Setup

Sep 29

We identify a Bearish Butterfly Harmonic pattern forming on the AUD/USD chart, which could provide a profitable short trade opportunity. Here's a breakdown of the strategy:

1. Harmonic Pattern Formation
The pattern follows specific Fibonacci retracement and extension levels, with key points outlined:
Point X: The start of the upward movement.
Point A: First bullish impulse.
Point B: A correction to around the 0.618 Fibonacci level of XA.
Point C: A smaller bullish movement, retracing to 0.786–0.886 of AB.
Point D: Projected to form near 0.6900, signaling the end of the bullish cycle and a potential reversal.

2. Reversal Confirmation at Point D
TDIGM Oscillator: Overbought readings near 70 suggest the market is stretched and ready for a correction.
Fibonacci Resistance: Point D coincides with key Fibonacci extensions, reinforcing the bearish bias.
Candle Patterns: Look for reversal patterns like bearish engulfing or shooting star for additional confirmation.

3. Short Entry
Ideal Entry: Between 0.6880 and 0.6900 after confirmation of resistance.
Stop Loss: Above 0.6950 to protect against potential continuation of the bullish trend.
4. Price Targets
First Target (T1): 0.6644 (Fibonacci 0.618 level and dynamic support).
Second Target (T2): 0.6461 (Fibonacci 0.786 level).

This Bearish Butterfly pattern presents a highly probable shorting opportunity on the AUD/USD. With strong confluence of technical signals around the 0.6900 level, careful entry and risk management could lead to a highly profitable trade. As always, monitor price action closely on lower timeframes for additional confirmation.