Gartley Pattern in Trading – Know Types, Rules, and Significance
Harmonic Gartley Pattern: A Trader’s Guide
What is Gartley Pattern in Trading
By applying established Fibonacci ratios in trading, it is possible to identify the Gartley pattern, a particular kind of harmonic pattern, on the chart.
It is the harmonic pattern in technical analysis for forex that is most frequently employed. It displays retracing and impulsive actions in a natural pattern. Most technical analysts are interested in this pattern to use it for trading because of the employment of the Fibonacci tool.
A natural tool is Fibonacci. Every aspect of nature exhibits a definite pattern. Because of this, it makes sense to forecast the market using the Gartley pattern.
Types of Gartley Pattern
Based on the market direction, the Gartley pattern is further divided into two categories.
- Bullish Gartley Pattern
- Bearish Gartley Pattern
Read more: What is Bearish and Bullish Meaning in Forex Trading?
How to Find out Gartley Pattern?
The four waves that make up the Gartley Pattern, one of which is an impulsive wave, are then used to form the pattern’s retracement structure.
Remember that finding the five points XABCD is more important than calculating waves. To make things plain, I used the word “wave” for you.
Every point in the Gartley pattern must be at a Fibonacci level. If a single point does not follow the Fibonacci sequence, stay away from that combination.
Rules to recognize bearish Gartley Pattern
The five points of the bearish Gartley Pattern are XABCD. It signals the beginning of a fresh bearish trend. Keep in mind that you should look for a bearish pattern at the peak of a rally or when the market is overbought.
To spot the bearish Gartley pattern, adhere to the Fibonacci guidelines listed below.
- The starting point, X, intersects point A. In the case of a bearish pattern, X must be at the top of the pattern.
- The AB wave needs to retrace to the XA wave’s 61.8% Fibonacci level.
- The Fibonacci level of 88.6% or 38.2% of the AB wave must be reached by the BC wave. Either the 88.6% level or the 38.2% level is a possibility for a retracement. However, both possibilities are real.
- The CD wave, the fifth and final wave of the Gartley Pattern, must retrace to the XA wave’s 78.6% Fibonacci level.
To discover this pattern on the chart, you must take these four actions. Avoid using that arrangement if any of the aforementioned stages are failing.
Rules to recognize bullish Gartley Pattern
It signals the beginning of a fresh bullish trend. It has five points, similar to a bearish pattern, but each point’s location is different. To obtain a pattern with a high probability, keep in mind that you should look for bullish Gartley patterns at the bottom or in oversold conditions.
Use the guidelines below to spot a bullish Gartley Pattern.
- Initial point X is the lowest point in this pattern and also the initial point.
- In a bearish move, AB wave must retrace to 61.8% of XA wave.
- Retracement of the BC wave must occur at the 88.6% or 38.2% Fibonacci level of the AB wave.
- In a bullish Gartley pattern, CD wave retraced to the 78.6% Fibonacci level of XA wave.
What does Gartley Pattern signify?
It denotes the end of one wave and the beginning of the next. Two main waves can be seen if you approach this pattern like a seasoned trader would.
- Impulsive wave
- Retracement wave
While AD is a retracement wave, XA wave is an impulsive wave. The first wave in the market symbolises impulsive behaviour, while the following three waves signify retracement. For a better understanding, take a look at the image below.
This pattern’s structure demonstrates that trading this pattern makes sense. You will be able to recognise this pattern on the chart correctly once you have a firm grasp of the fundamentals.
Trading plan for Gartley Pattern
Finding a trading strategy comes after determining the harmonic chart pattern. Without a sound trading strategy, you’ll incur losses.
Since you will act arbitrarily if you don’t know where or when to initiate or close a deal. And doing technical analysis in this manner is not recommended. You are qualified to trade on a live account or practise on a demo account if you have provided answers to all the questions above.
Things to remember
To identify the best chart patterns, you must look at where each pattern appears on the graph.
For instance, at the bottom of a trend, you should search for a bullish Gartley Pattern. Bullish chart patterns should be avoided if the market is already overbought. Additionally, stay away from trading negative chart patterns when the market is oversold. because an overbought or oversold state increases the likelihood of a reversal.
Open a trade
Wait for the formation of a candlestick pattern once the pattern reaches point D. A candlestick pattern allows you to wait until the trend reverses while confirming the direction of the trade.
Two options exist for locating a stop-loss level.
Stop loss will be above/below point X in the event that wave CD retraces to the 78.6% Fibonacci level.
A few pips above or below the candlestick pattern will serve as the stop loss level if wave CD retraces to the 38.2% Fibonacci level.
A price level known as Point A will serve as a take-profit level. However, by using the 1.618 Fibonacci extension level of the XA wave, you can raise the take-profit level. Your risk-to-reward ratio will rise as a result.
For swing and intraday traders, the optimal timeframes to trade harmonic patterns are 15 minutes to 4 hours.
How to Trade when you see the Gartley Pattern?
What to consider to enter the trade?
The trend should be noted before determining whether or not to place a Gartley trade. Draw the Gartley pattern on your chart by outlining the four price movements and ensuring that they respond to their appropriate Fibonacci levels. Every price action swing should be marked with the crucial letters X, A, B, C, and D. You will be able to determine the pattern’s overall size and gain a thorough understanding of the parameters by doing this.
After observing the following circumstances, open a long trade if your chat is a bullish Gartley:
- At the BC move’s Fibonacci levels of 127.2 percent or 161.8 percent, CD receives support.
- From the corresponding Fibonacci level, the price action bounces upward.
The same two rules are used to open a trade if the Gartley pattern is bearish. However, in this instance, you’ll be trading on the short side.
Where to set your stop-loss for a Gartley trade?
Regardless of your favourite entry signal, it is always advised that you employ a stop-loss order. You will be shielding yourself from any sudden or quick changes in pricing by doing this. The stop loss order for a bullish Gartley trade is located below the chart pattern’s D point. Although your stop loss order should be placed above the pattern’s D point for a bearish Gartley trade.
What to aim for your take profit for a Gartley trade?
You anticipate the price to move in your favour when you begin your Gartley trade and set your stop-loss order, correct? If and when that happens, you should be aware of how long you plan to stay in the industry.
When trading a Gartley harmonic pattern, it is best to start out fully invested after the D bounce before scaling out at various points. You may choose to keep a little amount of the trade open in order to profit on a huge move if the price momentum continues to show signs of strength. To determine the ideal final exit position, use price action indicators such as candle patterns, trend lines, support and resistance strategies, and support and resistance tactics.
Although Gartley is the most common harmonic pattern, you won’t be able to get it more frequently than other chart patterns because of Fibonacci constraints. However, if you have recognized this chart pattern in a currency pair or cryptocurrency, you shouldn’t pass up a trading chance.