What Is a Gartley Pattern?

04/14/2010 12:01 am EST

Focus: STRATEGIES

Roger Stojsic

1. A visual, geometric price/time pattern comprised of four consecutive price swings, or trends—it looks like a skewed “W” or “M” on price chart
2. Contains an ABCD pattern preceded by a swing high or swing low
3. First introduced in 1935 by trader H.M. Gartley in his book, Profits in the Stock Market. Specific pattern characteristics including Fibonacci price/time ratios applied by veteran trader Larry Pesavento in his book, Fibonacci Ratios with Pattern Recognition.

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Why Is the Gartley Pattern Important?

1. Helps identify trading opportunities in any market (forex, stocks, futures, etc.), on any time frame (intraday, swing, position), and in any market condition (bullish, bearish, or range-bound markets)
2. Reflects convergence of Fibonacci retracement and extension levels at point D, thus indicating a higher probability pattern
3. Acts as a leading indicator, helping to determine approximately where and when to enter and exit a trade

How Do I Find a Gartley Pattern?

Each turning point (X, A, B, C, and D) represents a significant high or significant low on a price chart. These points define four consecutive price swings, or trends, which make up each of the four pattern “legs.” These are referred to as the XA leg, AB leg, the BC leg, and the CD leg. Each pattern has both a bullish and bearish version. Bullish patterns help identify higher-probability opportunities to buy, or “go long.” Bearish patterns help signal opportunities to “short,” or sell. In addition to the following guidelines, ABCD pattern rules/characteristics are still in effect and must be observed, i.e. warning signs such as wide-ranging candles and/or gaps prior to pattern completion.

Bearish Gartley Pattern Rules (Sell at Point D)

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1. Price swing from A up to D, ideally at the 61.8% or 78.6% retracement of XA
• Valid ABCD pattern must be observed in move from A to D
2. Time of AD ideally "equal" to XA, but may fall within 61.8%-161.8% time of XA
3. Limited instances where ABCD move completes at 100% of XA (double top)
• Note: Time of XA and AD should be equal for “true” double top
4. Pattern failure occurs when price moves beyond point X and may indicate a strong continuation move is in progress
• Price typically moves to 127.2% or 161.8% of XA

Bullish Gartley Pattern Rules (Buy at point D)

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1. Swing down from point A to point D will typically be 61.8% or 78.6% retracement of XA
• Valid ABCD pattern must be observed in move from A to D
2. Time of AD ideally "equal" to XA, but may fall within 61.8%-161.8% time of XA
3. Limited instances where ABCD move completes at 100% of XA (double bottom)
• Note: Time of XA and AD should be equal for “true” double top
4. Pattern failure occurs when price moves beyond point X and may indicate a strong continuation move is in progress
• Price typically moves to 127.2% or 161.8% of XA

By Roger A. Stojsic of GFTForex.com

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