The Butterfly Principle, like the Elliott Wave Theory, is based on the Fibonacci Magic Sequence as its structural basis. Under certain circumstances, it can not only ignore the existence of some commonly used technical indicators. From a certain perspective, the butterfly theory can even put aside the "truth" of the technical school that follows the trend. Before fully understanding the Butterfly Principle, you may disdain me comparing it to the famous Elliott Wave Theory. But as you gradually understand the principle and application of butterfly, you may slowly realize its excellence as a market analyzer. First of all, we need to introduce the origin and development process of the butterfly principle. As early as 1935, a man named H.M. Gartley published a book called "Profits in the Stock Market". This was a book about morphological technical analysis. The book was more than 700 pages thick. A limited edition of 1,000 copies was sold at the astronomical price of $1,500 each. With the purchasing power of the United States during the Great Depression, this book could buy three brand new Ford cars! The best part of it is discussed on page 222. The best time and price form, this form is very powerful and effective, and later this form was named Gartley222, which is the name of the form after the person. What I want to explain here is that the main market during that period was the stock market. Elliott's "Wave Theory" was published in 1938, which basically belongs to the same period as H.M. Gartley's "Stock Market Profit". What is interesting is that both the wave theory and the book written by Gartley use the golden ratio for analysis. Later, Scott M. Carney published a book called "The Harmonic Trader" in 1999, which was also a book on morphological analysis and trading. Carney discussed Gartley222 in the third part of the book. Then the Butterfly pattern was introduced and discussed in detail. The butterfly pattern is divided into the bull market butterfly pattern and the bear market butterfly pattern. The basis of the butterfly pattern is Gartley222, which enriches the connotation and content of the Gartley pattern.

It can be said that the development of the butterfly form to this day is not the work of one person, but has evolved and been optimized from multiple angles. Some adjustments and changes have also been made to the basic principles of the butterfly shape. Especially after point C is confirmed, the location of point D can be effectively predicted. The current application has good results in actual combat. The author realizes that the butterfly shape described in "Harmonious Trading" (based on the Fibonacci Magic Sequence as the structural basis) can be regarded as the product of the natural laws of things. Ideally, if we confirm X and A in the trend chart , B, C, and D points, we can determine the reversal trend after point D. The combination of callback ratios between points X, A, B, C, and D must satisfy a specific Fibonacci sequence combination. Of course, in the actual trend, the morphological characteristics of the trend and the magnitude of the correction will always be infinitely close to the ideal state. In this way, we have to work hard on the selection of points. The following are the various forms of the butterfly and the corresponding Fibonacci retracement ratios under ideal conditions. I hope investors will keep this in mind. In the actual trend, there will inevitably be slight deviations in the correction amplitude between points, and this combination of deviations will lead to differences in the selection of the butterfly pattern. This requires a lot of analysis practice to find the analysis rules that suit you.

Due to the existence of the butterfly pattern, in many cases conventional analysis methods such as trend line (extended line of X-B) support and resistance, horizontal support and resistance (horizontal prices of points A and B) have become less important. There are many such examples. When you have been worried countless times that your commonly used indicators have failed and you are unable to analyze the trend, maybe the butterfly pattern is your life-saving straw. Previously, we mainly introduced the historical development process of butterfly theory and the proportional relationship between various forms, and also conducted an example analysis of BAT forms. Through the previous lecture, we have a general understanding of the butterfly principle. What we need to do after that is to conduct a large amount of analysis and research around the various forms of the butterfly principle, combined with actual charts, in order to strengthen investors' grasp of the forms.

In the examples, some special situations will also be clarified. In order to improve the efficiency of investors learning the Butterfly Principle, I will introduce the relatively important Butterfly Principle information that investors must master. First of all, I hope investors will understand the two books about butterfly patterns, "Harmonious Trading" and "Fibanachi Proportion and Pattern Recognition". Although both books are in English, the content in the book is not very logical and the content is not difficult to understand. Second, keep in mind the callback proportion of each form in the "Butterfly Pattern List" and the "AB=CD Comparison Table" in the first lecture. Third, master the typical morphological illustrations of the butterfly principle included in the blog. Fourth, conduct practical analysis and summary based on the knowledge of butterfly principles. As mentioned in the previous lecture, some adjustments and changes have been made to the basic principles of the butterfly shape. The most representative thing is that the running direction and position of point D can be judged through three points: X, A, B, and C. The method introduced in the book only predicts the flip after point D. A lot of practice has proved that we only need to grasp the band market between CDs to operate, and we can achieve stable profits. It is not necessary to follow the introduction in the Butterfly English book to grasp the flip after point D.

In addition, not all form D points are absolute flip points, and the form may change due to changes in point D. Taking the W butterfly pattern as an example, when point D is below point X, the pattern can belong to Gartley or Bat. As point D moves upward, after breaking through the level of point X, the pattern will change to Butterfly or Crab. This is why I mentioned "the first target position..., the second target position..." many times in my analysis. Many "butterfly enthusiasts" still have a lot of doubts after reading the analysis article on the principle of butterfly, especially there are some problems in grasping the shape. It needs to be emphasized that the butterfly pattern analysis market cannot simply pursue the Fibonacci callback ratio on the points (high and low points). The "harmony" in the form is also very important. This is what I have emphasized many times in my articles - technical indicators are only used as morphological reminders. What they can do is help investors save a lot of time in identifying the basic prototype of butterflies from various graphics. Investors must add human analysis. The following points on the graph can be regarded as "disharmony" in the butterfly shape, and investors need to operate with caution. Please keep in mind: 1. The time interval between point A and point C is too close, and the time interval between point X and point B is too close, which can be regarded as "disharmony" in the form. 2. When segment AB or segment CD is a consolidation market (only the extreme limit meets the callback ratio), it can be regarded as "disharmonious" in the form. 3. Point X is not located at a relative high point or low point on the trend chart, which can be regarded as a "disharmonious" form. 4. Long-term consolidation or correction in each trend segment of XA, AB, BC, and CD can be regarded as "disharmony" in the form. 5. The period or price difference between the AB period and the CD period is too large, which can be regarded as a "disharmonious" pattern. In addition, the "disharmony" of the pattern does not mean that the trend must not meet the butterfly pattern. It’s just that sometimes the probability of success decreases.

We know that the Fibonacci sequence has been widely used in technical analysis. Gann created his own system by combining the Fibonacci sequence with geometry; Elliott used Fibonacci numbers to explain Jialulan used Filippo's theory to create waves; Jialulan used Fei's numbers combined with the calendar to create a spiral calendar. The Butterfly Principle is also formed through the combination of Fibonacci proportions. In addition, the analysis methods mentioned above are not only applied in foreign exchange technical analysis, but are also effective in stock K-line and futures K-line. This further illustrates that the Fibonacci Magic Sequence exists in all areas of the objective world (this point of view recommends reading the first chapter of "Applications of Fibonacci Strange Numbers and Buying and Selling Trading Strategies"). The valuable thing about the butterfly principle is the objectivity of its existence. This objectively existing product makes our analysis more objective. All we need to do is to find this tangible form, that's all. This is why the butterfly principle is superior to many technical analyses. Many technical analyzes are based on artificially obtaining experience and patterns through historical trends, and then using auxiliary measures to predict the future. However, the premise that must be ensured is that this pattern must exist forever. But this is often not the case. Today’s support and resistance levels may become vulnerable tomorrow. A false breakthrough of the trend line will knock out your stop loss. A false divergence may cause you to lose your position. Everyone should have experienced the tried and true. Technical indicators suddenly fail, and people give this a nice name called indicator passivation. Maybe you can achieve a relatively high prediction accuracy through the superposition of multiple indicators, but due to the passivation of indicators you may constantly change your trading ideas. What I want to say is that maybe the butterfly principle can help you solve the above troubles. Although no analysis idea will be 100% accurate, because the market is constantly changing, and everyone's analytical thinking will be different. But I think that based on the objective existence of the butterfly form alone, we have reason to study it in depth. Another point of view that reflects the objective existence of the butterfly form is that the butterfly form does not only appear in the time period we see. The one-minute chart, five-minute chart, fifteen-minute chart, half-hour chart, one-hour chart, four-hour chart, daily chart, weekly chart, and monthly chart we see are just the K-line trend performance of the time period set by the trading platform. form. Butterfly patterns will also appear in the one-and-a-half-hour period, three-hour chart, and five-hour chart that are not shown. In fact, the different period charts we see on the trading platform are like a glass of water extracted from a swimming pool, and there are several period charts that we cannot see. There are also a large number of potential opportunities for butterfly patterns in these charts. The so-called "butterfly phenomenon" is everywhere. We hope to achieve higher accuracy in predicting the market through the butterfly principle, which is closely related to investors' understanding of patterns. From a purely theoretical core value perspective, the Butterfly Principle refines the analysis method to digitization (callback proportion combination), which has reached a high level in the field of technical analysis.