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The Butterfly Pattern is a harmonic reversal pattern identified by Scott Carney where point D extends beyond point X, completing at the 127.2% or 161.8% extension of XA. This is the key difference from the Gartley — the Butterfly is an extension pattern, not a retracement pattern.
In a bullish Butterfly, D drops below X to the 127.2% extension, creating a new low before reversing. This means the Butterfly catches reversals at more extreme levels, often at the absolute bottom of a move.
The pattern is powerful precisely because D extends into "no man's land" below the prior low, where most traders are panicking. The precise Fibonacci completion provides confidence to buy when everyone else is selling.
The Butterfly extends beyond the obvious support/resistance. Where the Gartley reverses at 78.6% within the XA range, the Butterfly pushes through X to trap breakout traders and stop-hunters before reversing.
Point D at 127.2% of XA is where stops below X get triggered. Smart money uses this liquidity event to build positions. The stop hunt becomes the fuel for the reversal.
The pattern works because the extension to 127.2% is the natural Fibonacci expansion of the XA move. Combined with the internal ABCD structure arriving at the same level, it creates a precise zone where selling exhausts.
Enter at D (127.2% extension of XA) with reversal confirmation. This is below the prior low, so you need conviction from the Fibonacci level and candle signals.
Below 161.8% of XA. This gives the pattern room while defining clear invalidation.
T1: Point B. T2: Point A. T3: 161.8% of AD for extended moves.
Often 1:3 or better. Buying below the prior low with a measured stop gives excellent R:R.
Butterflies are contrarian by nature — you're buying below the prior low or selling above the prior high. This requires conviction in the Fibonacci levels and pattern structure.
Butterflies catch the stop-hunt. When price breaks below a major low and you see a 127.2% extension with a hammer, that's the Butterfly doing its thing.
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