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The Bullish Butterfly Pattern
What is it?
• Contains an ABCD pattern preceded by a significant low (X)
• Convergence of Fibonacci extension ratios
– Point D = extension of BC and XA
• Formed by two connecting triangles at B
• Pattern is found only at significant tops (highs) and bottoms (lows)
Why is it important?
• Convergence of Fibonacci extension ratios may provide higher probability for change
in market direction
• May provide lower risk with potential for higher reward
• Pattern failure may suggest a strong continuation move
Sounds good … So how do I find it?
Butterfly patterns are similar to Gartley patterns in that they resemble a “M” shape on a
price chart. However, a butterfly pattern completes at the convergence of two separate
Fibonacci extension levels, whereas the Gartley completes at the convergence of a Fibonacci
retracement and extension.
The symmetry between the two connecting triangles at point B is one of the keys to this
pattern. As with all geometric patterns, a buy or sell signal occurs as the pattern completes at
point D.
A
C
B
D
X
Butterfly Buy Pattern
(Bull)
®
Source: GFT
A
C
BX
D
A C
BX
D
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WEBThe Bullish Butterfly Pattern (cont’d)
Bullish Butterfly Pattern Rules (buy at point D)
1. The swing from A-to-D should be a 127.2% or 161.8%
extension of XA
• Note: D must be below X
2. A valid ABCD must be observed in the extension move (AD)
3. Additional confirmation may be attained when the times
of the XAB and BCD triangles are in proportion. Ideally,
these two triangles will be nearly equal in time. Otherwise,
look for the BCD triangle to complete between 61.8% and
161.8% of XAB
4. A move beyond 161.8% negates the pattern and may
suggest a potentially strong bearish continuation is in
progress
Example 1: EUR/JPY, 15min
Example 2: EUR/USD, 15min
Butterfly Buy Pattern (Bull)
A
C
B
D
X
61.8% or 78.6%
127.2% or 161.8%
127.2% or 161.8%
Source: GFT
Source: GFT
A 78.6%
C
X B
D
127.2%
127.2%
B
C
X
D
127.2%
161.8%
A
IMPORTANT NOTE: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for
you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a
loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange
trading, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results. CD04U.052.030509
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