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Technical Analysis was formed over many decades, and with each period there appeared more and more perfect new patterns. So in 1935, an experienced Wall Street analyst named Harold Gartley described a lucrative trading model in the form of a butterfly in his book. In the current article, I prepared a strategy for you using the well-known Gartli's Butterfly, which is focused on CFD contracts.

Features of the Gartley pattern

I noticed that the main difficulty for beginning traders and even more experienced ones is precisely the competent construction of a butterfly on graphics. Unfortunately, many do not understand the key rules and features of this pattern. Here are some of them:

• Availability of price movement ABCD;
• mandatory equality of segments AB and CD.

Schematically in the image, compliance with these rules is as follows.

butterfly gartly

Such a scheme is needed to make it easier to remember the model. In practice, it is better to consider real graphs. For example, the movement on Facebook (FB) from 16 on 27 March 2018 year.

butterfly gartly

Thus, the Gartley Butterfly is a model for continuing the trend and shows the prospects for a strong movement by inertia.

Strengthening the Pattern with the Fibonacci Correction

Any strategy based on the Gartley Butterfly implies a filter, otherwise there will be too many false inputs. It so happened that Fibonacci levels are most often used to amplify the signal. I also apply the Fibo levels and quite successfully. The following actions are performed for the signal filter:

1. The Fibo grid is stretched to the entire XA motion.

2. Ensure that the segment AB is above the level of 50%, preferably at the level of 61%.

Let's pay attention to an example. Movement on gold from 4 on 6 April 2018 year, just coincided with the Gartley Butterfly and the filter. 

butterfly gartly

As you can see, the segment AB is in the zone 61,8%, which indicates a very strong signal to enter the transaction.

In general, finding the price of a segment AB above 50% increases the probability of a successful transaction on 20-30%, which in the long run works wonders.

Conditions for entering a long position

If we intend to purchase an asset, then the following conditions must be met:

1. timeframe - not lower than M5;

2. the presence of an upward trend in the global and short term;

3. formation of the ABCD pattern by all the rules of the Gartley Butterfly;

4. the rollback of AB, which is more than 50% of the movement (measured by Fibonacci levels);

5. the first target level of the transaction is the local extremum (high traffic);

6. the second target level of the deal is above the extreme at 30% of the total traffic;

7. the ratio of stop-loss and take-profit is not less than 1 to 3;

8. after passing 50% to the goal of transferring the stop to lossless;

9. the risk on the transaction is not more than 2% of the deposit;

10. the psychological factor is not to trade if there are any doubts or bad attitude.

An example of a transaction. Traffic on Microsoft with 12 on 17 April 2018 year. 

butterfly gartly 4

As you can see, AB rolled back exactly to 50% of the previous momentum in the trend, then a false breakdown from CD followed and the price performed a classic ABCD pattern with the Gartley Butterfly. It turned out a very profitable ratio of potential profit and risk, I fixed 70% profit on the target number 1, and 30% on target No. 2.

Conditions for entering a short position

If we intend to sell a CFD contract, then the following conditions will be required:

1. timeframe - not lower than M5;

2. presence of a downward trend in the global and short term;

3. formation of the ABCD pattern by all the rules of the Gartley Butterfly;

4. the rollback of AB, which is more than 50% of the movement (measured by Fibonacci levels);

5. the first target level of the transaction is the local extremum (low traffic);

6. the second target level of the deal is above the extreme at 30% of the total traffic;

7. the ratio of stop-loss and take-profit is not less than 1 to 3;

8. after passing 50% to the goal of transferring the stop to lossless;

9. the risk on the transaction is not more than 2% of the deposit;

10. the psychological factor is not to trade if there are any doubts or bad attitude.

An example of a transaction. Movement on Nike shares from 9 on 20 April 2018.

butterfly gartly 6

This time the pattern gave a very strong confirmation, when the segment AB was fixed in the region of 61,8% by Fibonacci. In addition, this position of the price gives an extremely favorable risk-to-profit ratio. For the second purpose I managed to earn 1 to 10, but 70% profit, as in the previous example, I fix on the target number of 1, as there are often false breakdowns and a sharp price turn.

As a result, the strategy of trading with the help of the Gartley Butter needs careful attention to the correct construction of the pattern on the chart, taking into account all the above requirements. As a rule, this frightens traders, but in reality it is not difficult. It is necessary to confirm signals by Fibonacci levels, only so the pattern really works.

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