The Gartley pattern is a type of Harmonic pattern that is based on Fibonacci numbers and ratios.
Like other Harmonic patterns, the Gartley describes the price highs and lows.
H.M. Gartley introduced the pattern in 1932 with his book “Profits in the Stock Market.” The Garley is also known as the 222 pattern, as H.M. Gartley mentioned the pattern on page 222 of the book.
Initially, the Fibonacci levels were not applied in the Gartley pattern, but later, Larry Pesavento applied the Fib ratios in his book, “Fibonacci Ratios with Pattern Recognition.”
What is the Gartley pattern?
The Gartley uses Fibonacci numbers and ratios to identify the direction of the trend with precise price points. The Fibonacci is a sequence of numbers that forms by adding the previous two numbers (0, 1, 1, 2, 3, 5, 8, 13). These numbers build breakout and retracement in prices and mark the level of support and resistance.
This is how the Gartley pattern appears on the chart:
As the above chart illustrates, there are five points of the Gartley pattern (X, A, B, C, and D). Collectively, these are known as legs.
The pattern surfaces with the movement from X to A. Then, there is a shift from A to B. Here, the Fibonacci ratios come into play. The distance between A to B and X to B is the same as the ratio of 61.8%. After that, the price moves from B to C, with a retracement of 38.2%. The distance between A to C has a ratio of 88.6%. Next, the price travels from C to D, with a ratio of 127.2%. Point B to D has an extension of 161.8%. The pattern completes at point D, with the distance between X to D is 78.6%.
Traders get these ratios through the Fibonacci sequence. To get 61.8%, traders divide the number in the sequence by the number to its right. For example, 13/22 = 0.619.
You can check the detailed guide on how to calculate the Fibonacci ratios by following the link.
How to use the Gartley pattern?
Traders can utilize the Gartley with its bullish and bearish version.
The bullish Gartley appears in a downtrend and signals a potential reversal. The pattern looks identical to an alphabet M.
The bearish Gartley emerges in an uptrend and signifies a price reversal. The pattern looks W.
For going long and short, traders take their positions at point D.
It’s essential to remember that traders must wait to confirm a trend reversal and not enter the trade earlier. This is because sometimes, the Gartley pattern can give false signals. To help mitigate this issue, one could use momentum oscillators or other technical analysis.
Gartley pattern trading strategy
The Gartley pattern works on all timeframes, traders may look for the Gartley pattern on any timeframe according to their own individual trading needs.
Gartley pattern buy strategy
- Locate the pattern in a downtrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade at point D.
- Place a stop-loss near the recent low from point D.
- Exit the trade before the price moves downwards.
Gartley pattern sell strategy
- Look for the pattern in an uptrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade at point D.
- Place a stop-loss near the recent high from point D.
- Exit the trade before the price rises.
Gartley pattern conclusion
The Gartley pattern is a simple yet effective Harmonic pattern. To increase its usefulness, traders may apply the Gartley with other technical analysis.
The Gartley Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
I would prefer to use the majority of candlestick patterns such as the Gartley Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.
The Gartley Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.
Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.
The methods of implementing the Gartley Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.
Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.
If you would like to practice trading with the Gartley Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.