In this article, we want to give you a “heads up” on the EURAUD.
The instrument has formed a BEARISH BUTTERFLY pattern on a daily chart.
The Butterfly pattern can be found near key market reversal points, usually at intermediate highs and lows. The appearance of the butterfly pattern indicates reversals when it is validated. The chart below gives an illustration of the Bullish and Bearish butterfly patterns.
Rules for the Butterfly pattern
Before you try and trade the pattern, make sure that the following rules are met:
Butterfly Rules
AB can retrace up to 78.6% of the XA leg
BC can retrace between 38.2% – 88.6% of AB
CD can be an extension of 1.618% – 2.618% of AB
CD can also be an extension of up to 1.272% – 1.618% of XA leg
The point D is known as the PRZ or Potential Reversal Zone
From Point D, a trade can be entered with stops at or above (below) the price point at D.
How to trade this pattern? Since the pair has reached almost 1.27% Fibonacci extension of the X-A leg this is the zone for the market entry as it is shown on the chart. The stop loss should be above the point D 1.6300 level. The take profit target should be at least 50% Fibonacci retracement of the 11600-13200 A-D range.
By using our top-down trading technical analysis we have identified the key levels which will be triggers for the entry and exit, based on the present market conditions of the instrument. This analysis has been brought to you by Motive Wave platform.
Happy trading! (click on the chart to enlarge it)
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