As of 05/16/2022
Indus: 32,223 +26.76 +0.1%
Trans: 14,335 -121.64 -0.8%
Utils: 994 +1.06 +0.1%
Nasdaq: 11,663 -142.21 -1.2%
S&P 500: 4,008 -15.88 -0.4%
|
YTD
-11.3%
-13.0%
+1.3%
-25.5%
-15.9%
|
 33,500 or 30,500 by 06/01/202215,500 or 13,700 by 06/01/20221,050 or 940 by 06/01/202212,800 or 11,000 by 06/01/20224,250 or 3,850 by 06/01/2022 |
As of 05/16/2022
Indus: 32,223 +26.76 +0.1%
Trans: 14,335 -121.64 -0.8%
Utils: 994 +1.06 +0.1%
Nasdaq: 11,663 -142.21 -1.2%
S&P 500: 4,008 -15.88 -0.4%
|
YTD
-11.3%
-13.0%
+1.3%
-25.5%
-15.9%
| |
|
33,500 or 30,500 by 06/01/202215,500 or 13,700 by 06/01/20221,050 or 940 by 06/01/202212,800 or 11,000 by 06/01/20224,250 or 3,850 by 06/01/2022 | ||
Statistics updated on 8/28/2020.
Identification guidelines for the bullish butterfly use Fibonacci ratios to locate the turning points. In the tests performed and discussed below, I used publicly available information to identify the Fibonacci ratios and applied them in a manner that I believe is correct. Additional guidelines may allow you to tune the performance of the chart pattern so that it makes for a better trading vehicle.
Bullish Butterfly
|
Important Results for Bullish ButterflyOverall performance rank (1 is best): 2 out of 5 (versus other Fibonacci patterns, only)
Break even failure rate: 11%
Average rise: 40%
Percentage turning at point D: 91%
The above numbers are based on just over 700 perfect trades in bull markets only. See the glossary for definitions. |
See the below table and associated figure.
| Characteristic | Discussion | 
The Bullish Butterfly Retraces
|
| XAB | Price rises from X (see figure on the right, not drawn to scale) to peak at A and retraces 78.6% to B. | |
| ABC | Another retrace occurs as price rises from B to C. The Fibonacci ratios which apply are shown in the figure as CB/AB. | |
| BCD | The extension CD as a percentage of CB covers the ratios shown (see CD/CB). | |
| AD/AX | The final leg of the pattern sees price drop from peak C to valley D. The AD move measures 127% of AX. |
| Trading Tactic | Explanation |
| Fibonacci | Use the length of AX to help predict the price at which the stock will turn at D. AD should be 1.27 times as long as AX. |
| Go long | Once price turns at D, buy the stock. Price may continue dropping below D but that happens just 9% of the time. |
| Stop | If price closes below D, then exit the trade. |
| Measure Rule | After price turns at D, I found price rises to A 39% of the time, to B 79% of the time, and to C 49% of the time. |
Let's take a look at a trading example.
I show the butterfly on the daily chart of LSB Industries. X has a low of 7.64, A peaks at 9.93, B has a range of 8.49 to 8.08, C has a range of 9.70 to 9.05 and D has a range of 7.80 to 7.03.
Using these numbers, the AB/AX retrace ranges from 63% to 81%, depending if you use the high or low at B. The 78.6% Fibonacci ratio rests near the high end of that range, so I consider it a valid turning point.
Similarly, the CB/AB retrace ranges between 52% and 88%, depending on the high/low value of C. Three of the Fibonacci ratios (61.8%, 70.7%, and 78.6%) are within the high/low range.
The CD/CB extension ranges between 117% and 165% (using high/low values of D), comfortably snuggling in the Fibonacci ratio of 161.8%
Lastly, the AD/AX extension measures between 93% and 127%, depending on the high/low choice of D. However, I use a 3 percentage point window (3% above or below) for this last ratio (because it's an exact match), so a Fibonacci ratio of 127% works anyway.
The stock peaks at H (the ultimate high after which price drops at least 20% or closes below the bottom of the pattern), at a price of 11.70 for a rise above D of 66%.
-- Thomas Bulkowski
See Also
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Butterfly is a registered trademark of Scott Carney.
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