The Gartley pattern is a compelling harmonic chart pattern rooted in the principles of Fibonacci numbers and ratios. This timeless technique helps traders pinpoint reaction highs and lows effectively. Founded by H.M. Gartley in his book Profits in the Stock Market in 1935, the Gartley pattern has since become the cornerstone of harmonic chart patterns. Larry Pesavento further refined this pattern by applying Fibonacci ratios in his book Fibonacci Ratios with Pattern Recognition.
Key Takeaways
- Gartley patterns are the epiphany of harmonic chart patterns.
- The stop-loss point is often placed at Point 0 or X, with the take-profit commonly set at Point C.
- These patterns thrive when used alongside other technical analysis methods, offering robust confirmation signals.
Understanding the Gartley Pattern
The Gartley pattern is revered as the most ubiquitous harmonic chart pattern. Harmonic patterns operate on the belief that Fibonacci sequences construct geometric structures exemplified by breakouts and retracements in prices. The ubiquity of Fibonacci ratios in nature has intrigued technical analysts, leading them to adopt tools such as Fibonacci retracements, extensions, fans, clusters, and time zones.
Many seasoned technical analysts integrate the Gartley pattern with other chart patterns or technical indicators. For instance, while the pattern offers a macroscopic prediction of future price movement, traders often execute short-term trades following the predicted long-term trend. Moreover, breakout and breakdown price targets can function as strong support and resistance levels.
A notable advantage of harmonic patterns, such as the Gartley, is their ability to yield specific insights regarding both the timing and amplitude of price movements, unlike methods that focus on either context.
Other widely used geometric chart patterns include Elliott Waves, which likewise project future trends based on price movement structures and their interrelationships.
Identifying Gartley Patterns
Bullish Gartley Pattern Structure
The illustration below depicts a bullish Gartley pattern:
- Uptrend (0 to 1): Tהe price moves upwards from point 0 to point 1 and then witnesses a reversal.
- First Fibonacci Retracement (1 to 2): Using Fibonacci ratios, the retracement between points 0 and 2 approximates 61.8% of the prior move.
- Second Retracement (2 to 3): At point 2, the price temporarily reverses towards point 3, marking a 38.2% retracement from point 1.
- Third Movement (3 to 4): At point 3, price heads into a final retracement toward point 4. Upon the formation of the bottom (point 4), the future trend projection gives buy signals, mapping potential price targets at point 3, point 1, and a 161.8% increase from point 1.
- Stop Loss: Point 0 often serves as a prudent stop-loss level for managing trade risks.
Bearish Gartley Pattern Structure
The bearish variant is the inverse of its bullish counterpart. It foresees a downtrend along different Fibonacci price targets reaching conclusion by the fourth point.
Real World Example: AUD/USD Currency Pair
To illustrate, consider a Gartley pattern on an AUD/USD chart:
Here, the Gartley pattern signals a bullish maneuver upwards. Point X (or 0.70550) could serve as a stop-loss benchmark for the trade, while aiming the take-profit target at Point C (around 0.71300).
Related Terms: Harmonic Patterns, Fibonacci Retracement, Elliott Waves, Trend Analysis.
References
- H.M. Gartley. “Profits in the Stock Market”. Health Research Books, 1935.
- Larry Pesavento and Steven Shapiro. “Fibonacci Ratios With Pattern Recognition”. Traders Press, 1997.
