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63 The most important number, the 1.27 projection of the XA leg, was probably the best point to buy. But, this was a tricky execution because the day the stock hit the potential reversal zone the price action was quite extreme. So, in this case, you probably should have waited a day for a clear reversal bar to enter the trade. The stock declined slightly past this point, as Broadvision did not reverse until it hit 9 1/4 a few days later. BROAD\TSION(BVSN); DAILY BULLISH BUTTERFIjY 50 40 30 20 10 ®Big,Charts.i5orfl Jun Jul Aug Sep Oct Hov Dec 39 Feb liar Apr I included a close-up of the price action. It is important to study this example because it was such an ideal pattem. Despite the fact that the stock exceeded slightly the potential reversal zone, it still was a very harmonic setup.
This close-up of Broadvision shows that the stock could not decline past the potential reversal zone. Although the day the price action hit the zone was extreme, the stock lacked a bearish continuation. Broadvision found support just below the projected harmonic area, and reversed within the following few days. - - /N 30 28 26 24 22 20 18 ti 14 12 10 BROADVISION (BVSN): DAILY BULLISH BUTTERFLY SBigCharti.com 11 1 [11 1». .. 1 , May Jun Jul Ru jjuiJiil This example demonstrates the importance of respecting the waming signs of price gaps, tail closes or extreme price ranges. Since Broadvision sold off sharply the day it hit the reversal zone, possessing a waming sign in the form of an extreme price range, you probably should have waited until a bullish price bar established a clear reversal.
Bearish Butterfly In a bearish Butterfly, the points must be aligned properly to define a valid pattem. Again, the most important point is the completion point at D. This must be above all of the other points in the pattem. bearish butterfly ab=<cd sell at d! As the illustration demonstrates, the X to A leg will establish the main range for the following price action. Similar to the Gartley, point A should not be exceeded by point C. Also, as the diagram illustrates, point D must exceed both points, X and B. Similar to the bullish pattem, the AB=CD usually will require an altemate calculation. Since ideal Butterfly pattems occur at extreme price ranges (all-time highs or lows), the CD leg usually will experience an extreme price move and can become over-extended. I do wait for the completion of the exact AB=CD at a minimum before executing a trade. For now, I suggest that you memorize the basic geometric pattem. This basic firamework appears firequently in many stocks that are establishing critical reversals.
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