What is the ‘Gartley Pattern’
The Gartley pattern is a complex chart pattern, based on Fibonacci numbers and ratios, that helps traders identify reaction highs and lows. In his book Profits in the Stock Market, H.M. Garley laid down the foundation for harmonic chart patterns in 1932. The Gartley pattern is the most commonly used harmonic chart pattern. Larry Pesavento later applied Fibonacci ratios to the pattern in his book Fibonacci Ratios with Pattern Recognition.
BREAKING DOWN ‘Gartley Pattern’
The Gartley pattern is the most common harmonic chart pattern. Harmonic patterns operate on the premise that Fibonacci sequences can be used to build geometric structures, such as breakouts and retracements, in prices. The Fibonacci ratio is common in nature and has become a popular area of focus among technical analysts that use tools like Fibonacci ratios, fans, clusters, and time zones.
Many technical analysts use the Gartley pattern in conjunction with other chart patterns or technical indicators. For example, the pattern may provide a big picture overview of where the price is likely to go over the long-term, while traders focus on executing short-term trades in the direction of the predicted trend. The breakout and breakdown price targets may also be used as support and resistance levels by traders.
The key benefit of these types of chart patterns is that they provide specific insights into both the timing and magnitude of price movements rather than just look at one or the other.
Other popular geometric chart patterns used by traders include Elliott Waves, which makes similar predictions of trends in the future based on the appearance of the price movements and their relation to each other.
Gartley Pattern Example
Here’s an example of a bullish Gartley pattern:
The Gartley example shows an uptrend from point 0 to point 1 with a price reversal at point 1. Using Fibonacci ratios, the retracement between point 0 and point 2 should be 61.8%. At point 2, the price reverses again toward point 3, which should be a 38.2% retracement from point 1. At point 3, the price reverses to point 4. At point 4, the pattern is complete and buy signals are generated with an upside target that matches point 3, point 1, and a 161.8% increase from point 1 as the final price target. Often times, point 0 is used as a stop loss level for the overall trade.
The bearish version of the Gartley pattern is simply the inverse of the bullish pattern and predicts a bearish downtrend with several price targets when the pattern reaches completion by the fourth point.
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