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Leslie Jouflas
Founder of
www.TradingLiveOnline.com

Presents The Butterfly Pattern


©2011 Trading Live Online, LLC. All Rights Reserved

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All information is for personal use only and
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Copyright © 2011. All rights reserved

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îooks îy Leslie Jouflas
Gssentials of Trading:
It¶s Not WHAT You
Think
It¶s Ho| You Think

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Ôhat we will cover in the îutterfly Pattern
Presentation

M History of the îutterfly Pattern: where did it


come from?
M îutterfly Pattern Structure: how it forms
M Chart Examples
M Characteristics of the îutterfly Pattern

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îutterfly Pattern

M The îutterfly pattern is an Extension Pattern

M First named ³îutterfly´ by Larry Pesavento

M Found in all markets and in all time frames

M Tend to occur at major tops and bottoms

M Reversal Pattern

M Ôhen this pattern fails ± it usually fails big

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History of the îutterfly Pattern
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îutterfly Pattern Structure
M Should have symmetry
M The structure has 4 legs
M Must have an Aî CD leg in the extension
M The C - D leg extends beyond ³X´
M The completion point is generally determined
by the extension of the X - A leg

This pattern takes some time to identify and


learn, but well worth the effort!

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îutterfly îuy and Sell Patterns
Two Triangles

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îutterfly Pattern
îasic Structure

îutterfly îuy outline îutterfly Sell Outline

MAî is a retracement of the XA leg


MîC is a retracement of the Aî leg
MThe final leg, C to D will extend
above (sell) or below (buy) the starting point of X

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Fibonacci Retracements Used

1
8
9/
A9
9
/ 1A

B
 
/ 9/

B
 

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Fibonacci Extensions Used for Pattern Completion
areas

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Calculating the Extension

1.27 Ratio 1.618 Ratio

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îutterfly Pattern Structure Tips

M Look for symmetry


M The final leg, or 4th leg, is ³extended´ beyond the previous swing high
or low which is labeled ³X´. Final leg is the CD leg.
M The extension will usually be a 1.27 or 1.618, but you may see other
ratios.
M The îC leg will also be extended, but the completion point is usually
determined with the X ± A leg and the Aî CD completion areas.
M The Aî and îC legs of the pattern will usually be the .618 or .786
retracement.
M The pattern is valid if a .382 or .50 retracement of the Aî leg or the îC
leg.
M The î retracement can not exceed X and the C retracement can not
exceed A.
M There may be other Aî CD patterns within the legs of the pattern

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Comparison

Asymmetrical Symmetrical



;


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Structure of the îutterfly Pattern on a price
chart

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îutterfly Pattern Structure

SP Emini îutterfly SP Emini îutterfly

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Extended CD Leg
Extended Leg Aî CD in Extended leg

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5 Items that Invalidate the îutterfly Pattern

1. No Aî CD Pattern

2. Extension move beyond the 1.618 of X to A. The 1.618 is


generally the maximum risk

3. î can not be below X in a buy pattern formation. î can not


be above X in a sell pattern formation

4. C can not be above A for a buy pattern or below A for a


sell pattern.

5. Failure of D to extend beyond X

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Failed îutterfly Pattern

Only D
Extends beyond X

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³î´ Can not be below ³X´ ± but you may still have a valid
Aî CD Pattern (Can you find the butterfly sell?)

B
î

&

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Make sure you have a valid Aî CD Pattern
C Can not exceed A
î Can not exceed X

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Series of îutterfly Patterns

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2 îutterfly Patterns within an Aî CD

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Euro 2 îutterfly Sells

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Use Retracements

îutterfly Sell Pattern îutterfly Sell to retracement

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Euro îutterfly îuy

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AAPL Stock îutterfly Sell Pattern

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Failed îutterfly Pattern

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Multiple Indexes with îutterfly Sells

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March 2009 îutterfly îuy Pattern

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