Bearish Butterfly Patter
The first swing down is created when the price drops from the starting point X to the ending point A.
The A to B swing up in price is a reversal in direction and retraces approximately 78.6% of the price move of the X to A drop.
The B to C swing back down is the next directional change and price falls back down with a retracement of between 38.2% to 88.6% of the price swing of the A to B upswing.
The C to D upswing and breakout is the last part of the butterfly pattern and is important for confirmation and completion. This harmonic pattern has close to a AB=CD price structure, but the C to D upswing frequently breaks out creating a 127%, 161.8%, or even a 224% price extension of the A to B upswing. Traders commonly use the point D price level at the end of the pattern to sell short seeing it as a good risk/reward ratio after the overbought move.
The Bearish Butterfly Pattern is a reversal chart pattern that can show technical traders a high probability price level to sell short at a very overbought reading after a long move and extension in price from the mean creates a high probability for a retracement and swing back down.
The A to B swing up in price is a reversal in direction and retraces approximately 78.6% of the price move of the X to A drop.
The B to C swing back down is the next directional change and price falls back down with a retracement of between 38.2% to 88.6% of the price swing of the A to B upswing.
The C to D upswing and breakout is the last part of the butterfly pattern and is important for confirmation and completion. This harmonic pattern has close to a AB=CD price structure, but the C to D upswing frequently breaks out creating a 127%, 161.8%, or even a 224% price extension of the A to B upswing. Traders commonly use the point D price level at the end of the pattern to sell short seeing it as a good risk/reward ratio after the overbought move.
The Bearish Butterfly Pattern is a reversal chart pattern that can show technical traders a high probability price level to sell short at a very overbought reading after a long move and extension in price from the mean creates a high probability for a retracement and swing back down.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.