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The gartley pattern part 2

 

In our last article, we discussed how the Gartley pattern is formed and where entries and stops should be placed for the initial trade. In this article we will discuss ways to profit from the pattern and maintain appropriate risk management.

Every trade should have targets. These can be fixed targets or dynamic ones specific to the current trade. In the case of this trade we have used Fibonacci retracements from the swing low of the AB=CD to the swing high or D point in order to set the targets. Managing a trade for profit taking is a good practice, as it allows initial profits while maintaining potential for further profits.

As seen in our example trade, our first target was hit (Chart 3). At this point two things happen. First, profits are taken on a percentage (scaling out) of the trade. Second, risk is reduced by moving the original stop which was located above the swing high of the larger move to just above the D point of our entry. This was done again for one reason; we don’t know anything for certain in trading!

As the trade developed through the London session we can see that a rally was established. Will it last? We don’t know. Therefore, our movement of the stop to just above D helps control our overall risk but still gives the trade room to work. See highlighted bars in Chart 4.

By allowing our trade to develop and giving it room to move, we have attained our profit targets in just less than a 24 hour day. The trade grossed near 100 pips on the first target followed by a slower move to our second target which gave us a profit of near 200 pips. Some traders also use a three part “peel” to capture further moves. If this is done, it is acceptable to move the stop loss to just above the 1st target, thus ensuring a profit on the third portion of the trade if it was used. This allows for two distinct targets with a third left to “run” with the trend. See Chart 5.

An intrical part of using the gartley is a better understanding of fibonacci ratios and how they work dynamically to assit a trader to see current market support and resistance. Details regarding these methods can be found at http://www.fibmarkets.com


Contributed by Toyogo00, Lori, Bert, & FibMaster at
http://www.traderzine.com
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Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »

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