The Gartley pattern falls under continuation patterns category and is crucial in verifying whether a price will continue treading its initial trend after the occurrence of retracement. Gartley pattern is efficient to use since it appears frequently in Forex trading charts. More so, its forms dictate whether the incoming trend is bullish or bearish continuation.
GARTLEY PATTERN DEFINITION
Gartley pattern or less commonly known as Gartley 222 pattern was developed by H.M. Gartley in 1932. After introducing the Gartley pattern indicator to the Forex market, this gained popularity as one of the most helpful harmonic pattern to determine price continuation. It has a distinct resemblance with AB=CD pattern but with an additional leg.
This often appears in M or W form from which, its shape is dictated whether by bullish or bearish trend. For this to be valid, it is required to reach a specific retracement levels and patterns dependent on Fibonacci retracement and extension levels.
GARTLEY PATTERN INDICATORS
As this is categorized as a harmonic pattern, each turning point must be in respect or in congruence to a certain Fibonacci retracement level. As the price moves, these points will dictate the final form of the Gartley pattern. The general premise of the Gartley pattern is:
- XA- Considered as the beginning point which could move higher or lower.
- AB- This is 61.8% Fibonacci retracement of the XA wave.
- BC- This ranges from 38.2% to 88.6% Fibonacci retracement of AB wave.
- CD- This is 78.6% retracement of the XA wave.
Note that these reversals do not necessarily need to be accurately placed to Fibonacci levels but they should be close enough for the pattern to be valid.
HOW TO USE GARTLEY PATTERN
In Gartley pattern trading, it is ideal to open a buy and sell position if the price approaches point D as this is a 78.6% retracement of X-A leg. If such happens, a trader can expect that the price will reverse its short span trend and carry on with its long span trend. Once the price made any move surpassing these levels, the position must be exited at a small loss since it denotes an invalid pattern.
When it comes to stop loss, it is a safe bet to place it underneath the point X as it will leave minimum setback in comparison with upside probability. While Take profit is placed based on situations, some traders seek A-D levels’ 61.8% retracement. However, other traders are in pursuit to reexamine point A level located above or just below of the long-term trend. It is essential to place take profit at different levels to estimate out earnings.
Gartley pattern came to be the most widely known harmonic patterns helpful in forecasting underlying trend continuations. As it shows up often, traders maximize the use of such by making it the starting point for more in-depth technical analysis. More so, Gartley pattern trading is of great advantage in Forex trading should it be utilized together with other technical analysis approach crucial for trend confirmation.