What is a butterfly pattern in trading?

The butterfly pattern is made up of four legs marked X-A, A-B, B-C, and C-D. It helps traders determine when a current price move is probably getting to its end. This means traders can enter the market as the price changes direction. How to identify the Butterfly pattern?

What is a butterfly market strategy?

The butterfly market strategy is part of the Harmonic trading patterns. Our team at Trading Strategy Guides has developed the most comprehensive step-by-step guide into Harmonic trading. We highly advise you to first start reading the introduction into the harmonic patterns here: Harmonic Pattern Trading Strategy- Easy Step By Step Guide.

How to set a butterfly profit target?

There are many ways to manage your trade and set the butterfly profit target. But, the ideal target for the Butterfly harmonic is to implement a multiple take profit strategy. For both the bearish butterfly pattern and bullish butterfly pattern, we’re going to take the first partial profit once we hit starting point A.

When should you buy a butterfly stock?

For maximum profit, you are looking for the stock to be near the middle strike close to the expiration date of the trade. Butterfly prices fluctuate wildly while you’re in the trade because there are 3 legs to the trade. But when you buy a butterfly, your maximum loss is what you paid for the trade.