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The gartley pattern part 1
The Gartley pattern was outlined by H.M. Gartley in his book Profits in the Stock Market, published in 1935. Gartley reversals appear on all time frame charts. These patterns form near important support or resistance levels and are very powerful. It’s important to note that these patterns as with most patterns work best if found in harmony with a larger trend. As with any strategy, there are warning signs that the trade may not work, such as long range bars or gaps into the entry area. With that said, let’s look at an example trade that was done during the writing of this article In April of 2009. We followed a one hour trade on a bearish Gartley pattern on GBPJPY.
The Gartley Pattern is always preceded by a larger move prior to its formation. This move can be up or down and would therefore present opportunity for a bullish Gartley or a Bearish Gartley. This article focuses on the bearish Gartley. A visual of the patterns overall look is found in Chart 1.
The Gartley’s basic structure is an AB=CD retrace into the prior longer move. An AB=CD move is simply this; A is starting point at bottom/top, B is the first major swing point. The distance from A to B should be noted. The C point is found as a higher/lower swing than A followed by a move in direction of the A to B move and somewhat equidistant as A to B thus forming AB=CD. See Chart 2.
The D point of the AB=CD is complete at a 1:1 ratio, however, many times it moves 1:1.272 and occasionally 1:1.618. 1:1 or 1:1.272 are Fibonacci expansions found in AB=CD patterns and are preferred entry areas especially if it harmonizes with another Fibonacci (or FIB) ratio from the original larger move. (More on advance Fibonacci techniques can be found at http://www.fibmarkets.com) This creates the entry area with a stop above the swing high from the prior larger move.
This cannot be stressed enough; Appropriate risk management must be used to ensure stop loss is appropriate to trade. The reason is simply put; we don’t know anything for certain in trading! A trader must be able to carefully allocate their risk capital and establish a maximum stop loss that gives these patterns room to play out without damaging the trading capital, should you be wrong on your analysis.
In part II of this article, we will discuss trading targets, risk management, and appropriate ways to scale out of a trade and ensure profits.
Contributed by Toyogo00, Lori, Bert, & FibMaster at
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