Article Summary: A leading technical analyst of the 1930s created a method for trading that is still applicable today. Learn how to trade market turning points based on Fibonacci retracements and market psychology with the Gartley Pattern.
Many traders ask how a trading method that is 77 years old is applicable today. When you combine timeless tools like Fibonacci Retracements with great risk: reward ratios, it’s easy to see why this method is so popular. If those aspects of a trading method appeal to you, it’s my pleasure to introduce you to the Gartley chart pattern.
What is the Gartley Pattern?
The Gartley pattern is a powerful and multi-rule based trade set-up that takes advantage of exhaustion in the market and provides great risk: reward ratios. The pattern is also known as the “Gartley 222” because the pattern originated from page 222 of H.M. Gartley’s book, Profits in the Stock Market that was published in 1935 and reportedly sold for $1,500 at the time.
The Gartley pattern is based on major turning points or fractals in the market. This pattern plays on trend reversal exhaustion and can be applied to the time frame of your choosing. The other key that makes this pattern unique are the crucial Fibonacci retracements that come together to fulfill the plan.
There is a bullish / long / buying pattern and an equally powerful bearish / short / selling pattern. Much like you would find with a head and shoulders pattern you buy or sell based on the fulfillment of the set up.
Buy & Sell Gartley Chart Pattern
Here is a stripped down version of patterns so you can see what the look like without price and time on the chart.
The buy pattern will always look like an “M” with an elongated front let. The sell pattern will always look like a “W” with an elongated front leg.
Gartley Strategy Tools
The three important tools to use on your chart when finding a Gartley are:
Fractals – The important part about trading the Gartley pattern is that you will trace the pattern from turning points or swings in the market. One of the better indicators to trace swings is Fractals. Fractals show up as arrow above swings in price.
Fibonacci Retracements – The Fibonacci retracements will make or break the patterns validity. Below are the specific retracements that make up the pattern. Fibonacci retracement lines are horizontal lines that display support or resistance in a move.
Add Line Tool (Optional) – This tool will allow you to clearly draw connecting points like X to A, A to B, B to C, and C to D for easy measuring.
Gartley Strategy Rules
- Point B should retrace 0.618 from the XA move.
- Point D should retrace 0.786 from the XA move and create the entry zone.
- Point D should be a 1.27 or 1.618 extension of the BC move
- Point C should retrace anywhere from 0.382 – 03886
- Buy or Sell at point D depending on whether the pattern is bullish or bearish
- Place stop either below the entry for the tightest or Risk: reward ratio or below Point X.
- If the market trades through Point X, the Gartley pattern is invalid and you should exit or not take the trade.
When these rules are met, you can find yourself on the cusp of a trade at the Entry Zone. Recognizing these points in the market is truly like riding a bike. Once you get the hang of it, the levels will pop out on the chart to you.
Closing Tips on Using This Pattern
When trading the Gartley pattern, the pattern is meant to be traded at D only. If you believe a pattern is unfolding but we’re only at point B, be patient and hold off until we get to D. The power of the pattern comes from converging Fibonacci levels of all points from X to D and using the completed pattern for well-defined risk.
Lastly, this can be traded on any time frame you prefer. The reason this method has a stable track record is that it is based on unusual market positions where most traders are afraid to enter. Take advantage of the risk: reward set up available and trade with proper trade size.
This pattern occurs rather frequently. When you get comfortable with using Fibonacci retracements for support and resistance you’ll find yourself looking for the points to complete a Gartley pattern. It is very important to watch for the D point to be at 78.6% of the XA leg and to keep your stops rather tight in case the pattern is invalidated. (dailyfx)
Tags: fibonacci, Gartley strategy, pattern
FAQs
The pattern is also known as the “Gartley 222” because the pattern originated from page 222 of H.M. Gartley's book, Profits in the Stock Market that was published in 1935 and reportedly sold for $1,500 at the time. The Gartley pattern is based on major turning points or fractals in the market.
What is the most successful chart pattern? ›
Head and Shoulders Pattern: The head and shoulders pattern is considered one of the most reliable chart patterns and is used to identify possible trend reversals.
What chart pattern is best for forex trading? ›
11 chart patterns for trading
- Symmetrical triangle.
- Flag.
- Wedge.
- Double top.
- Double bottom.
- Head and shoulders.
- Rounded top or bottom.
- Cup and handle.
The best chart patterns for day trading include the triangle, flag, pennant, wedge, and bullish hammer chart patterns. How to find patterns in day trading? To identify chart patterns within the day, it is recommended to use timeframes up to one hour.
What is the best time frame for trading chart patterns? ›
Start with a primary time frame, often daily/weekly, to identify core pattern. Then choose shorter intervals, e.g. Hourly / 15-min charts to determine accurate entry/exit points. Additionally, incorporate a longer time frame, such as a monthly chart, to assess the overall trend.
What is the most reliable trading pattern? ›
The Head and Shoulders pattern is widely used among traders and is considered one of the most reliable reversal patterns. The timeframe of these patterns includes a few weeks to many months.
What is the most bullish pattern? ›
The bullish engulfing pattern and the ascending triangle pattern are considered among the most favorable candlestick patterns. As with other forms of technical analysis, it is important to look for bullish confirmation and understand that there are no guaranteed results.
What chart do most day traders use? ›
Candle charts
The Presentation as "candles" is the most common form for day trading charts and the default setting in many trading programs. Each of these candles represents a period of time which - depending on the strategy and preference of the trade - can range from 5 minutes to several days.
Which trading chart is accurate? ›
Candlestick charts are perhaps the most widely used among active traders. In some ways, candlestick charts blend the benefits of line and bar charts as they convey both time and impact value. Each candlestick represents a specific timeframe and displays opening, closing, high, and low prices.
What is the most accurate indicator for forex? ›
Top 10 forex indicators for FX traders
- Average true range (ATR)
- Moving average convergence/divergence (MACD)
- Fibonacci retracements.
- Relative strength index (RSI)
- Pivot point.
- Stochastic.
- Parabolic SAR.
- Ichimoku Cloud.
One popular breakout day trading strategy is the ascending triangle pattern, a bullish price consolidation pattern that often appears at a key resistance level. This pattern is often seen as a buying opportunity during an overall uptrend.
What time frame do day traders look at? ›
The golden rule in day trading is that you close all your positions by the end of the day. Day traders usually look at hourly trading time frames and use the 4-hour time frame to hunt for trends.
What flags you as a pattern day trader? ›
What is a pattern day trader? If you make four or more day trades over the course of any five business days, and those trades account for more than 6% of your account activity over that time period, your margin account will be flagged as a pattern day trader account.
What is the most profitable time frame for trading? ›
What I Use and Why. From experience, I can tell you that two of the best time frames to trade are the daily and 4-hour. This isn't to say that you can't be profitable trading a different time frame, but these two are what made me profitable as they work the best with the price action strategies I use.
Is it better to trade the daily chart? ›
Trading inconsistently – All trading signals are stronger and clearer on daily charts than on time frames below, thus it makes your trading more effective and consistent over the long-term due to the increased reliability of the signals.
What chart signals to look out for day trading? ›
The ADX indicator is another tool that helps traders measure the strength of trends, and appears as an oscillator underneath trading charts. It is plotted from 0-100 – a reading above 25 indicates a strong trend while 25 or below will suggest a weak trend or no trend at all.
Which chart is most effective? ›
Bar charts are one of the most common data visualizations. You can use them to quickly compare data across categories, highlight differences, show trends and outliers, and reveal historical highs and lows at a glance. Bar charts are especially effective when you have data that can be split into multiple categories.
Which candlestick pattern is most accurate? ›
The pin bar and engulfing candlestick patterns are two of the most reliable and profitable in my experience.
What is the best chart to show completion? ›
Funnel Chart
A funnel chart shows a series of steps and the completion rate for each step. Use this type of chart to track the sales process or the conversion rate across a series of pages or steps.
What is the rarest astrology pattern? ›
The Grand Cross, or Grand Square, is one of the rarest natal chart aspects in astrology. A Grand Cross happens when there are four personal planets separated by 90 degrees on the birth chart, forming a square shape and cross in the birth chart.
