The trading strategy called “Butterfly Gartley” is based on working with charts that allow predicting the market behavior based on the manifestation of specific indicators. In particular, “butterflies” are most effective for forecasting market reversals and continuing the identified trends. They are most often used with timeframes of 15, 30 or 60 minutes. At the same time, the construction of a chart with the support of Fibonacci levels is equally successful for any assets, including those traded on traditional stock exchanges.
How does “Butterfly Gartley” form (Fig. 1)? In fact, this indicator owes its appearance to several components at once: the graphical pattern of Gartli and Fibonacci levels, which provides a higher accuracy of forecasting. It is at the moment of coincidence of these two elements on the chart that a harmonic model, called “butterfly”, appears.
Actually, the beginning of “Butterfly Gartley” goes back to the early 30s of last century. It was then that this notion came into use for the first time on stock exchanges. Initially, the “butterflies” were built graphically, without the use of Fibonacci levels, and the classic figure on the chart looked more like a variation on the theme of “waves”. But she’s got her own, obvious and distinctive features.
“Butterfly Gartley” on the charts
The basis of “Butterfly Gartley” is the pattern AB = CD. That is, without additional support lines it cannot be distinguished from the usual correction of the price level. In this case, the formation of the chart line to the point A (lower or higher point, from which the price reversal and subsequent correction begin) from the point X is a reference for further construction of the figure. In this case, point B will be at the level of 61.8% of the height of this line, and point D at the level of 78.6% (for the classical model).
The “Butterfly” is built only if the lengths of segments of patterns AB=CD are conditionally equal. It is they who determine the development of the trading strategy with the use of this indicator. All other parameters are variable and may deviate within the error range of 10 – 15% from the classical parameters.
Applied in practice, the strategy of “butterfly” involves the formation of a point of entry into the market at the level of entry points already provided for this pattern, with a predetermined initial level of stop-loss. But if desired, using this indicator, you can trade on trend lines or on line breakout/breakout levels. You can use the tactics of holding positions or the strategy of breaking the extremum, which is actively practiced on the usual ZigZag indicators.
“Butterfly Gartley is one of the most effective technical analysis tools. The ratio of profitable to unprofitable trades, concluded on the basis of this indicator, often reaches 15 to 1. That is, out of the 15 operations performed, only one is closed at a loss. But, of course, everything depends on the specific trading situation and factors of influence that arise when building a model on the chart.