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 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 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?
The Gartley pattern will resemble either an ‘M’ or a ‘W’ shape on a price chart; it will be ‘M’ if the price movement is bullish, and it will be ‘W’ if the price movement is bearish. This pattern is the most common of the harmonic patterns, the others of which include ‘the butterfly‘, ‘the bat‘ and ‘the crab‘.
To identify a Gartley pattern, you first need a plain chart with no indicators present other than the Fibonacci lines. Any chart being analyzed for harmonic patterns needs to have four price movements that switch directions each time, with points X, A, B, C, and D.
Traders can utilize the Gartley with its bullish and bearish version.
Bullish Gartley
The bullish Gartley appears in a downtrend and signals a potential reversal. The pattern looks identical to an alphabet M.
Bearish Gartley
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, 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.
In order to enter a Gartley trade you should first identify the pattern and then confirm its validity. To draw the Gartley pattern on your chart, you should outline the four price swings on the chart and check to make sure they respond to their respective Fibonacci levels.
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. Harmonic patterns can be applied to all financial markets, including stocks, commodities, and the forex market. These patterns are used to help traders find good entry points to jump in on the overall trend.
A Gartley forms when the price action has been going on a recent uptrend (or downtrend) but has started to show signs of a correction. 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.
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