The Bearish Butterfly Pattern

 

What is it?

• Contains a bearish ABCD pattern preceded by a significant high (X)
• Convergence of Fibonacci extension ratios at point D
– Point D = Fibonacci extension of BC and XA
• Formed by two connecting triangles at point B, symmetry is key
• 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 the potential for higher reward
• Pattern failure may suggest a potentially strong bearish continuation may be in progress
Sounds good … So how do I find it?
Butterfly patterns are similar to Gartley patterns in that they resemble a “W” shape on a
price chart. However, a butterfly pattern completes at the convergence of two separate
Fibonacci extension levels (D is above X) whereas the Gartley completes at the convergence
of a Fibonacci retracement and extension (D is below X). The symmetry between the two
connecting triangles at point B is one of the keys to this pattern.

Bearish Butterfly Pattern Rules
1. The swing from A to D is a 127.2% or 161.8% extension of XA
• Note: D must be above 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
4. A move beyond 161.8% negates the pattern and may suggest
a potentially strong bullish continuation