Butterfly Harmonic Pattern [TradingFinder] Harmonic Detector

5. Aug.

🔵Introduction

The Butterfly Harmonic Pattern is a sophisticated and highly regarded tool in technical analysis, utilized by traders to identify potential reversal points in the financial markets. This pattern is distinguished by its reliance on Fibonacci ratios and geometric configurations, which aid in predicting price movements with remarkable precision.

The origin of the Butterfly Harmonic Pattern can be traced back to the pioneering work of Bryce Gilmore, who is credited with discovering this pattern. Gilmore's extensive research and expertise in Fibonacci ratios laid the groundwork for the identification and application of this pattern in technical analysis.

The Butterfly pattern, like other harmonic patterns, is based on the principle that market movements are not random but follow specific structures and ratios.

The pattern is characterized by a distinct "M" shape in bullish scenarios and a "W" shape in bearish scenarios, each indicating a potential reversal point. These formations are identified by specific Fibonacci retracement and extension levels, making the Butterfly pattern a powerful tool for traders seeking to capitalize on market turning points.

The precise nature of the Butterfly pattern allows for the accurate prediction of target prices and the establishment of strategic entry and exit points, making it an indispensable component of a trader's analytical arsenal.


Bullish:




Bearish:




🔵How to Use


Like other harmonic patterns, the Butterfly pattern is categorized based on how it forms at the end of an uptrend or downtrend. Unlike the Gartley and Bat patterns, the Butterfly pattern, similar to the Crab pattern, forms outside the wave 3 range at the end of a rally.

🟣Types of Butterfly Harmonic Patterns


🟣Bullish Butterfly Pattern

This pattern forms at the end of a downtrend and leads to a trend reversal from a downtrend to an uptrend.




🟣Bearish Butterfly Pattern

In contrast to the Bullish Butterfly pattern, this pattern forms at the end of an uptrend and warns analysts of a trend reversal to a downtrend. In this case, traders are encouraged to shift their trading stance from buy trades to sell trades.





Advantages and Limitations of the Butterfly Pattern in Technical Analysis:

The Butterfly pattern is considered one of the precise and stable tools in financial market analysis. However, it is always important to pay special attention to the advantages and limitations of each pattern.

Here, we review the advantages and disadvantages of using the Butterfly harmonic pattern:

• The main advantage of the Butterfly pattern is providing very accurate signals.
  
• Using Fibonacci golden ratios and geometric rules, the Butterfly pattern identifies patterns accurately and systematically. (This high accuracy significantly helps investors in making trading decisions.)
  
• Identifying this pattern requires expertise and experience in technical analysis.
  
• Recognizing the Butterfly pattern might be complex for beginner traders. (Correct identification of the pattern necessitates mastery over geometric principles and Fibonacci ratios.)
  
• The Butterfly harmonic pattern might issue false trading signals. (Traders usually combine the Butterfly pattern with other technical tools to confirm buy and sell signals.)
  

🔵Setting


🟣Logical Setting

ZigZag Pivot Period: You can adjust the period so that the harmonic patterns are adjusted according to the pivot period you want. This factor is the most important parameter in pattern recognition.

Show Valid Format: If this parameter is on "On" mode, only patterns will be displayed that they have exact format and no noise can be seen in them. If "Off" is, the patterns displayed that maybe are noisy and do not exactly correspond to the original pattern.





Show Formation Last Pivot Confirm: if Turned on, you can see this ability of patterns when their last pivot is formed. If this feature is off, it will see the patterns as soon as they are formed. The advantage of this option being clear is less formation of fielded patterns, and it is accompanied by the latest pattern seeing and a sharp reduction in reward to risk.

Period of Formation Last Pivot: Using this parameter you can determine that the last pivot is based on Pivot period.





🟣Genaral Setting


Show: Enter "On" to display the template and "Off" to not display the template.
Color: Enter the desired color to draw the pattern in this parameter.
LineWidth: You can enter the number 1 or numbers higher than one to adjust the thickness of the drawing lines. This number must be an integer and increases with increasing thickness.
LabelSize: You can adjust the size of the labels by using the "size.auto", "size.tiny", "size.smal", "size.normal", "size.large" or "size.huge" entries.



🟣Alert Setting

Alert: On / Off

Message Frequency: This string parameter defines the announcement frequency. Choices include: "All" (activates the alert every time the function is called), "Once Per Bar" (activates the alert only on the first call within the bar), and "Once Per Bar Close" (the alert is activated only by a call at the last script execution of the real-time bar upon closing). The default setting is "Once per Bar".

Show Alert Time by Time Zone: The date, hour, and minute you receive in alert messages can be based on any time zone you choose. For example, if you want New York time, you should enter "UTC-4". This input is set to the time zone "UTC" by default.