In 1932, H.M. Gartley described a 5-point “Gartley” trading pattern in his book, Profits in the Stock Market. Larry Pesavento has improved this pattern with Fibonacci ratios and established rules on how to trade the “Gartley” pattern in his book, Fibonacci Ratios with Pattern Recognition. There are many other authors who have worked on this pattern, but the best work to my knowledge is done by Scott Carney in his books of “Harmonic Trading”.

“Gartley” patterns have five points starting at point X, which is the lowest of all points in a bullish setup and the highest of all points in a bearish setup. For bullish Gartley, from X, prices rise to form a higher swing-high at “A”. From A, a retracement swing low “B” is formed within 0.382 to 0.6 18 of XA range. Another swing high “C” is formed at 0.6 18 of AB. Point “D” is formed in Potential Reversal Zone (PRZ) within 0.61 8 to 0.786 of XA swing, or 1.27 to 1.62 of BC range. D is the decision or buy trade point in bullish “Gartley” setup. Point D is
also a sell trade point in a bearish “Gartley” setup.

Trade: A confluence of Fib ratio levels is calculated to find a Potential Reversal Zone (PRZ). This is the area where Gartley pattern formations are anticipated for reversals and for potential trade entries. Trades are only placed after “D” formation and if the market makes a reversal bar (wide-range or higher-high) from the PRZ.

Target: The first set of targets are the price levels of C and A. The second target is set at extensions of 1.27 to 1.62 of AD range.

Stop: Once a trade is triggered, a “stop” is placed below D or below PRZ for “long” and above D for “short” trades.

Trading Gartley Bullish Pattern

Trading Gartley Bullish Pattern

The example above shows a bullish “Gartley” formation from the daily GE stock chart. From mid September 2006 to November 2006, GE formed a “Gartley” formation. The B level retracement was 60.1 % near the minimum of Gartley’s requirement. The PRZ level was formed at 88.6% area at D. After D level, the price action is closely watched for a “long” ‘ trade entry. GE made higher-highs from D level suggesting a completion of the “Gartley” formation. A “long” entry is triggered at $35.35 area with a “stop” below D level at $34.30. Targets were placed first at the A level (at $36.48) and from 138% to 162% of XA range at $37.50.

Trading Gartley Bullish Pattern

Trading Gartley Bullish

The example above shows a bullish “Gartley” pattern from the Russell Emini (ER2) daily chart. After XA “swing,” the B level was formed near 62% of XA. C swing was formed at 0.886 of AB range. The “Gartley” pattern is completed when AB=CD is formed at D.

  1. After completion of D, a “long” trade is entered one-tick above previous bars’ high.
  2. A “stop” order was placed one tick below D level (PRZ).
  3. Place a target at 127% of XA level around 770 level.

Trading Gartley Bearish Pattern

Trading Gartley Bearish Pattern

The example above shows a bearish “Gartley” pattern from the Dow Emini futures (YM) 5m chart. The B retracement was formed at 62% of XA swing. C swing point was formed with 0.786 of AB swing. The D level was formed at 0.886 of XA range with AB=CD confluence.

  1. Enter a “short” trade one-tick below the previous bar’s low at ‘D’.
  2. Place a “stop” order one tick above the “D” level.
  3. Place “targets” at “A” level and at 1.62 of AD range.