The Gartley Pattern

Transcription

The Gartley Pattern - Market Traders Institute

Would you like to know how to “Earn at the Turn?” If you would like
a better understanding of the signals that could lead you into fresh
trading opportunities, take a few moments and become familiar
with the Gartley Pattern.
If you are a fan of harmonic chart patterns the names Butterfly, Bat,
Cypher, and Gartley may bring a smile to your face. But, if you are
new to technical analysis, these names may not mean much to you.
That is about to change.
Christopher Irvin
Director of Stock and
Options Education
The Butterfly, the Bat, the Cypher and the Gartley patterns are
advanced harmonic chart patterns that go well beyond the basic
concepts of candlesticks, trendlines, and support and resistance.
If you have ever wondered what the professionals know that you
may be missing, these patterns may solve the mystery.
Each of these patterns are incredibly powerful signals that
professional traders use to identify retracement levels and entries.
They are patterns that every trader should know and this guide will
introduce you to one of the most common...The Gartley Pattern.
Understanding this pattern could open your eyes to fresh insights
into technical analysis.
In this guide, you’ll define what the Gartley Pattern is, understand
how to spot it, and learn how to use this critical pattern in your
trading plan.
BONUS: Read to the end to see the Gartley Pattern spotter exercises!
Yours Truly,
Chris Irvin
P.S. For real-time, up-to-the-minute stock picks and market updates,
follow us on social:
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Copyright ©2015 Market Traders Institute, Inc. | 1-800-866-7431 | MarketTraders.com
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The Gartley Pattern in
Layman’s Terms
One common way to manage price swings on stock charts is to identify ABCD
patterns. The pattern actually looks very similar to a lightning bolt. The ABCD
pattern is made up of three phases.
The initial phase is known as the “rally.” The rally is identified with an A at
the initiation and a B at the completion. This initial move is often referred
to as the AB boundary. Following the rally, the second phase is known as
the “retracement.” The retracement phase
allows the primary trend to take a breather
before continuing on its original course. The
retracement phase begins at the end of the
rally, which is the B and ends at the C. The C
is a point where the original trend takes back
control from the retracement phase. The
final phase of the price swing is known as the
“extension.” This phase takes the price from the
end of the retracement (which is the C), to the
D extension above the previous B high (in the
case of a bullish move).
The “Gartley” is a pattern that forms its own sub
abcd price swing during the BC retracement
phase of the ABCD price swing.
Understanding the Gartley Pattern, and its
development, can benefit you as a trader
in two ways. First, the Gartley Pattern, can provide the trader with tradable
counter trend signals. Second, when you understand the retracement and the
extension levels of the pattern, you could be able to identify when the counter
trend is ending and when the extension phase is beginning.
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Why is it important to understand when the
retracement is ending?
It is important because many of the
most lucrative trading opportunities
will be found in the C to D extension
phase. The Gartley Pattern can
help traders find entry points on
the primary trend’s direction. This
pattern could help you to learn
when to make the turn. And, that is
where we make our money!
To some traders, the Gartley Pattern
can be intimidating. The tools used
to identify any harmonic pattern,
including the Gartley Pattern, may
look a bit overwhelming, but once
you understand the methodology behind the creation of the pattern, those fears will fall away.
One of my favorite sayings is “everything is easy IF you know what you are doing,” and it definitely
applies in this case.
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The
Gartley Pattern:
The Beginning
The Gartley Pattern has its foundation within the Fibonacci ratios.
If you are unfamiliar with Leonardo Fibonacci, it will suffice to know that
he was considered to be one of the greatest mathematicians of the middle
ages. One of his most important contributions to the Western world was
the introduction of the arabic numeral system to the Roman Empire. Another
contribution made by this scholar was the introduction of a series of numbers
that is now known as the Fibonacci Sequence.
It looks something like this:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...
This seemingly random set of numbers is actually anything but random.
If you were to look deeper into the study of the Fibonacci sequence, you would
learn that the Fibonacci numerical sequence is prevalent in many aspects of the
world in which we live. From the numbers of petals on a bouquet of Shasta
Daisies, to the architectural balance and symmetry found in the Parthenon,
the Fibonacci sequence and the ratios derived from the sequence, provide
powerful structure to the order of our world.
See the Fibonacci ratio taught on the live market charts and the trade
setups it’s alerting traders of right now in a free webinar.
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The Tell-All Fibonacci Sequence
As you may have already guessed, the Fibonacci numerical sequence also plays a major role in the
financial markets.
As well as having a powerful influence in science and nature, the Fibonacci sequence also has a
major impact on human psychology and, in turn, the financial markets.
The Fibonacci numerical sequence is also the foundation of a series of ratios that traders use to
derive, known as Fibonacci retracement and extension levels. These ratios are created when,
starting with the eighth number in the Fibonacci sequence, we divide one number by the numbers
prior to, and the following after that number.
Example:
55 ÷ 34 = 1.618
34 ÷ 55 = .618
Additional important Fibonacci ratios are
derived when starting with the eighth number
in the sequence, one number is divided by the
numbers that are two numbers prior and two
numbers following. Still others are the result of
taking the square roots of previously derived
Fibonacci ratios.
The good news is that if this type of math makes
your head spin, you don’t need to worry.
The Fibonacci ratios that are used to evaluate the financial markets, and more specifically the Gartley
Pattern, have already been calculated and are at the heart of some amazing technical analysis tools.
The easy part is learning how to use those tools. The most frequently used Fibonacci ratios are as
follows:
.86, .786, .618, .382, 1.18, 1.27, 1.618, 2.618
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A GPS for Your Trades
These ratios are foundational to the understanding of the ABCD price swing.
As discussed previously, the ABCD price swing moves in three phases. The rally, the retracement,
and the extension. The rally from A to B will always have a measurement of one, regardless of the
actual price movement.
The retracement phase from B to C will always be a percentage of the initial AB rally unless the
trend is reversing. We will use the Fibonacci ratios that are less than one (e.g. .382, .618, .786, .86)
to identify the potential retracement levels. Since the extension phase will take price above the
original AB move in a Gartley Pattern, it will be measured with a ratio that is greater than one (e.g.
1.18, 1,27, 1,618, 2.618). The next part of this discussion is the most critical aspect of understanding the
development of the ABCD price swing.
Based on the correlation of the ratios as they are derived, we are able to use the retracement levels
to project the extension levels.
Example:
1) The .382 retracement will correspond to the 2.618 CD extension.
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When the retracements and extensions are applied to charts, traders are able to project profit
targets based on correlations between the two. It really is like having a GPS for your trades. When
applied to a chart, the Fibonacci retracement and extension levels will look like this:
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Back to the
Gartley Pattern
Now that we have some understanding of Fibonacci ratios and how they are used in the markets,
let’s focus our attention back on the Gartley Pattern.
As stated previously, the Gartley Pattern is one of several patterns that help traders navigate the
BC retracement phase of the price swing. The example below shows where the BC retracements
are found in the trend. Based on the fact that the Gartley Pattern is a counter trend move, the price
swing is notated with lowercase letters and is referred to as a sub-abcd move.
Example:
The Gartley Pattern takes the same Fibonacci based price swing that
we use in the primary ABCD move and inverts it to measure the
retracement phase.
The Fibonacci retracement and extension ratios are the
same, but they move against the primary trend on a
smaller scale.
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Gartley
Pattern Phases
The initial phase of the Gartley Pattern is the primary AB retracement.
The sub a begins at the primary B. From the sub b, the market’s been
proven to retrace back to the .618 retracement level as shown below.
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The next move of the Gartley Pattern is the sub ab retracement to the sub c. This retracement
moves the market back to a level that is at or near the .618 retracement of the ab boundary.
The third phase of the Gartley Pattern is the sub extension that moves the sub d extension down to
a level that is approximately 1.618.
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The sub d extension may identify the low point of the retracement, which can also be identified as
the primary C.
This level will typically correspond to a level that is at or near the .786 retracement of the primary
AB boundary. Once the primary C has been identified, the trader can enter into the primary trend.
In this case re-establishing the bullish move.
PRO TIP:
For a full lesson on the Fibonacci Golden Ratio and how it could predict
entry and exit points for your trades, go to Lesson 6 of The Ultimate Stock
Course. Not an MTI student? Get a sneak peek of the Fibonacci Golden
Ratio on the live market charts when you register for an upcoming webinar.
Check the schedule and grab a ticket here.
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What Does it all Mean?
Once you confirm that a Gartley Pattern is in motion, you could prepare a trading
plan to profit on the CD movement. As it is taught in The Ultimate Stock Course,
you want to confirm the sub abcd boundaries first before looking to trade in the
Gartley Pattern.
Once you know where the sub d lies on the chart, you know where the larger trend’s
C is located. Based on the location of the C, you can project the corresponding D
extension level as your profit target. That’s the main value of a Gartley Pattern.
Bulls do it, Bears do it...
Remember that when you’re trading a bullish ABCD movement, your Gartley
Pattern will have a bearish sub-abcd from B to C of the major trend.
The opposite also holds true. You can find a Gartley Pattern on a bearish ABCD
movement, but you’ll need to remember that your sub-abcd will be a bullish trend.
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Gartly
Pattern
Exercises
Now that you know the ins and outs of the
Gartley Pattern, get your hands dirty.
Below you’ll find a series of exercises and
helpful hints for spotting Gartley Patterns and
finding trends within trends.
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Exercise:
1
Instructions: Determine which of the three
patterns is a Gartley Pattern.
A
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B
C
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Exercise:
2
Instructions: Locate the primary
ABCD levels on the chart.
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Exercise:
3
Instructions: Find the sub
abcd in the Gartley Pattern.
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Exercise:
4
Instructions: Outline the Gartley
Pattern on the chart.
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Answer Sheet
1
A
2
18
Answer Sheet
3
4
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 Free Ticket:
Tactics for Higher Returns with Stock Trading.
Now that you’ve mastered one market pattern,
it’s time to expand your horizons. There are a handful
of market patterns that could help you detect market
shifts in direction more quickly, trade trends and find
potentially profitable entry and exit points like a pro.
To learn more patterns and to get an up-to-the-minute
market review update, attend an upcoming webinar (free
ticket for The Ultimate Trader’s Guide to Gartley Patterns
Profits owners).
Register Now
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The Gartley Pattern - Market Traders Institute

Transcription

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