The Gartley pattern, one of the most traded harmonic patterns, is a retracement and continuation pattern that occurs when a trend temporarily reverses direction before continuing on its original course. It uses Fibonacci levels and has a bullish and bearish version.
The Gartley pattern, one of the most traded harmonic patterns, is aand continuation pattern that occurs when a temporarily direction before continuing on its original course. It gives you a low risk opportunity to enter the market where the pattern completes and the trend resumes.
As with manypatterns, there is a and a version.
The Gartley pattern includes the AB=CD pattern in its structure, meaning it is very important that you have studied this pattern first.
The pattern is often referred to as Gartley222 because H. M. Gartley first described it on page 222 of his 1935 book Profits In The Stock Market.
How to identify bearish and bullish Gartley patterns
The chart below demonstrates what a bullish Gartley pattern looks like:
As shown above, the Gartley pattern looks similar to the AB=CD pattern except it has an extra leg: X-A.
In its bullish version, this first leg forms when therises sharply from point X to point A. This is the pattern’s longest leg.
The A-B leg then sees the price change direction and retrace back down part of the distance covered by the X-A leg. In the pattern’s purest form, it will make a 61.8%retracement of the X-A leg.
Note that the A-B leg can never retrace beyond point X – if it does, the pattern is no longer valid.
In the B-C leg, the price changes direction again and moves back up, retracing anything from 38.2% to 88.6% of the distance covered by the A-B leg. If it retraces up beyond the high of point A, the pattern becomes invalid.
The C-D leg is the final and most important part of the pattern. As with the AB=CD pattern you are looking for an AB=CD structure to complete the pattern, looking to enter at point D.
The difference when trading the Gartley pattern is that you look to place your tradeat the point where the C-D leg has achieved a 78.6% retracement of the X-A leg.
This is easier to see, and it means that you can simply draw a Fibonacci retracement using the X-A leg and then use the 78.6% retracement level to enter. The pattern will no longer be valid if price retraces past point X.
Note: point D will not always be exactly the same as the 78.6% retracement, however, if point D is the same as the 78.6% retracement, it means that the signal to enter is stronger.
Ideally, point D should also represent a 127%-161.8% extension of the B-C leg.
Ready to learn more? Check out this article on trading harmonic price patterns.