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Created by H.M. Gartley, the Gartley chart patterns are utilized for technical analysis as well as are renowned for using Fibonacci ratios and numbers. It is a reversal chart pattern that offers clear rules in addition to excellent rewards. Continue reading to learn more about the Gartley chart pattern for trading.
In the Gartley chart pattern, 5 different letters are used for distinguishing separate waves/moves or impulses. Thus, X indicates the beginning of a trend, A indicates that the trend has come to an end and B indicates that the trend has pulled back for the first time, C indicates the pulling back of the pulling back (without breaking A point) and D indicates the C letter’s target. The different types of Gartley patterns are Gartley, Bat, Alternate Bat Pattern, Butterfly, Crab and Deep Crab.
How to Trade Gartley Chart Patterns?
Like any other pattern trading, Gartley pattern trading also entails identifying the right methodology for entry. Typically, one should enter only after a confirmation or when there is a break in the momentum.
The Gartley pattern should fulfill the below mentioned Fibonacci rules:
AB=Retracing to 0.618 Fibonacci level of XA.
BC=should be minimum 38.2% as well as maximum 78.6% Fibonacci level of the AB leg.
CD=Must pose a target that is anywhere between 1.27-1.618 Fibonacci extension of the AB leg or a target of the 0.786 of the XA leg.
Hence, the Gartley patterns which result in double bottoms and double bottoms are excellent indication of market reversals. However, traders must also understand that the Gartley pattern gives us a potential point of entry and does not tell us much regarding where we should place the stop loss order as well as where we must take our profits. Therefore, it is better that you take your time to backtest the pattern before using it for trading.