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The Gartley Pattern

The Gartley pattern is a harmonic pattern in technical analysis that seeks to identify potential reversals in the market. It consists of four distinct price swings - XA, AB, BC, and CD legs - that form an "M" or "W" shape on a price chart. The pattern is defined by specific Fibonacci ratios between the price swings, particularly the 0.618 and 0.382 retracement levels. When completed, the Gartley pattern indicates a potential reversal zone where traders may look to enter positions in the direction of the initial move.

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0% found this document useful (0 votes)
266 views1 page

The Gartley Pattern

The Gartley pattern is a harmonic pattern in technical analysis that seeks to identify potential reversals in the market. It consists of four distinct price swings - XA, AB, BC, and CD legs - that form an "M" or "W" shape on a price chart. The pattern is defined by specific Fibonacci ratios between the price swings, particularly the 0.618 and 0.382 retracement levels. When completed, the Gartley pattern indicates a potential reversal zone where traders may look to enter positions in the direction of the initial move.

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The Gartley pattern is one of the most well-known harmonic patterns in technical analysis.

It was first
introduced by H.M. Gartley in his book "Profits in the Stock Market" published in 1935. The Gartley
pattern is a reversal pattern that seeks to identify potential turning points in the market.

The Gartley pattern consists of a series of price swings that form an "M" or "W" shape on the price
chart. The pattern is defined by specific Fibonacci ratios between the price swings, particularly the
retracement levels. The key Fibonacci ratios used in the Gartley pattern are 0.618 and 0.382.

The Gartley pattern follows a specific structure and is composed of four distinct price swings. Here
are the main characteristics of the Gartley pattern:

1. XA Leg: The pattern begins with the XA leg, which is the initial price swing. It can be an uptrend or
a downtrend and represents the first major move in price.

2. AB Leg: The AB leg is a retracement of the XA leg. It typically retraces a portion of the XA leg and
ends at the 0.618 Fibonacci retracement level. This retracement level is crucial in identifying the
potential Gartley pattern.

3. BC Leg: The BC leg is a continuation of the price movement after the AB retracement. It extends
beyond the XA leg and usually reaches the 0.382 or 0.886 Fibonacci retracement level of the AB leg.
The BC leg is the longest among the price swings in the pattern.

4. CD Leg: The CD leg is the final leg of the pattern and represents the reversal back in the direction
of the original XA leg. It retraces a portion of the BC leg and typically terminates at the 0.786
Fibonacci retracement level of the XA leg. The CD leg should be roughly equal in length to the AB leg.

The completion of the Gartley pattern indicates a potential reversal zone, where traders may
consider entering trades. The pattern suggests that the price is likely to reverse and continue in the
direction of the initial XA leg. Traders often use additional technical analysis tools, such as support
and resistance levels, trendlines, and indicators, to confirm the validity of the Gartley pattern and
make trading decisions.

It's worth noting that not all Gartley patterns will result in successful trades. Risk management and
proper trade execution are essential when using harmonic patterns. Traders often combine the
Gartley pattern with other technical analysis techniques and use stop-loss orders and take-profit
levels to manage their risk and optimize their trading outcomes.

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