Unlike more popular chart patterns, the Gartley patterns are built according to strict Fibonacci ratios. One of the most common patterns is the harmonic Butterfly pattern. The butterfly is a part of the harmonic family of patterns, which include other formations such as Gartley, bat, crab, and AB CD. This is a five-point reversal chart pattern used in technical analysis by traders to help identify turning points in the market. It is a trading pattern with a specific shape and distances between each leg of the pattern.
The pattern chart drawing consists of four movements that resemble Elliot waves and form the pattern. Pivot points and price impulses are usually marked with letters. The very first is the X leg, it is formed from the starting point X and ends with point A, the highest or the lowest point of the entire formation. Then segments AB, BC, and CD appear successively on the wave of volatility.
On the one hand, the Butterfly harmonic pattern is a reversal trading pattern. After its completion, the price reverses sharply and forms a directional impulse (the blue line in the screenshot above). But if you look more globally, the local reversal pattern often signals the beginning of a larger trend.