Education

# 1.2 Butterfly Harmonic

NSE:NIFTY   Nifty 50 Index
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How to Trade Butterfly Harmonic
he butterfly market strategy like any other harmonic pattern is a four-leg reversal pattern that follows specific Fibonacci ratios. A proper harmonic Butterfly needs to fulfill the following three Fibonacci rules:
• AB= an ideal target of 0.786 or 78.6% of XA leg;
• BC= minimum 38.2% and maximum 88.6% Fibonacci retracement of AB leg;
• CD= Poses a target between 1.618% – 2.618 Fibonacci extension of AB leg between 1.272– 1.618 of XA leg.
The B point of the Butterfly harmonic pattern is important because it’s determining other Fibonacci measurements within the pattern to define the trade opportunities. So, the ideal target for the B point must possess precise 78.6% retracement of the XA swing. Other rules that redefine the structure further include the BC projection that must be at least 1.618 measurements.
• And, finally, the C point must be within the range of 0.382-0. 886 retracement .

• Step #1 How to Draw Butterfly Pattern
To learn how to draw butterfly chart pattern simply follow step by step guide – see figure in chart for a better understanding of the process:
• First, click on the harmonic pattern indicator which can be located on the right-hand side toolbar of the TradingView platform.
• Identify on the chart the starting point X, which can be any swing high or low point on the chart.
• Once you’ve located your first swing high/low point you simply have to follow the market swing wave movements.
• You need to have 4 points or 4 swings high/low points that bind together and form the harmonic bat pattern strategy.
• Every swing leg must be validated and abide by the bat pattern forex Fibonacci ratios presented above.
Step #2: SELL at Point D which should satisfy the requirement CD = 1.618 – 2.1618 of AB leg.

Step #3: Place the Protective Stop Loss at 1.618 of XA

Step #4: Multiple take profit strategy: TP1 = Point A; TP2 = Trailing SL below last swing high.