How To Trade The Gartley Pattern
The Gartley pattern helps identify price breakouts and signals where the currency pairs are headed. The pattern is also widely used in the forex market to determine strong support and resistance levels. In this article, we dive deeper into understanding the Gartley harmonic pattern.
What is the Gartley pattern?
The Gartley pattern is one of the most popular harmonic chart patterns that can identify the highest and lowest currency pair prices in the market. The pattern is based on Fibonacci ratios and numbers, and it indicates market continuation. The pattern is formed as soon as a market trend temporarily changes its direction before continuing in the initial direction. The price breakouts in the Gartley pattern are identified with the help of the Fibonacci sequence. Traders mostly use the 38.2%, 61.8%, 78.6% and 161.8% Fibonacci levels to identify market trends through this pattern.
- When the Gartley pattern moves upwards, it signals traders to place buy orders due to an expected continued uptrend signal.
- When the Gartley pattern moves downwards, it signals traders to place sell orders due to an expected continued downtrend signal.
Example of a Gartley pattern
Let’s assume we are trading USD/EUR at an exchange rate of 2. The initial market is in an uptrend, and the price increases from 2 to 3.2--an increase of 61.8% that marks the first Fibonacci retracement level of 61.8%. We continue to monitor the market closely and see that the market now falls by 78.6% to 2.5, forming the second Fibonacci retracement level and following a temporary downtrend. Finally, the market retraces back to its original trend and the exchange rate increases by the last Fibonacci retracement level of 161.8% and increases from 2.5 to 4.1, forming a continued uptrend. At this point, you receive a signal to long the trade to benefit from the rising market. Stop-loss orders in this situation can be placed at the 2.5 level to minimise risk, whereas take profit orders can be placed at the resistance line calculated through the Fibonacci levels.
How to identify the Gartley pattern?
The Gartley pattern is identified by placing Fibonacci retracement levels between two price points on the chart. But to do that, we need to first pay attention to the other points on the chart.
- A is the price movement that indicates whether the market is in an uptrend or downtrend.
- B is the first price retracement which is opposite to the market’s initial direction.
- C is the last upward movement in an uptrend and the last downward movement in a downtrend before the market continues trading in its initial direction.
- D is the last point of retracement after which the currency pair prices continue in the initial direction.
- X is the first price level considered in the Gartley pattern. When A is above point X, it indicates an uptrend and when it is below point X, it indicates a downtrend.
Here are five easy steps to identify the pattern in a forex market –
- Look for the initial movement from point X to A as the first point of contact.
- The second move is from A to B, where Fibonacci levels are first considered. The size of the AB line is approximately 61.8% of the length of the XA line, as 61.8% is the first Fibonacci retracement we apply.
- After the first movement, a second Fibonacci retracement movement is formed from point B to C, where BC's length is approximately 88.6% of AB's length, and BC is always below A to confirm market continuation.
- The second last move is from point C to D, which is between 127.2% to 161.8% longer than BC.
- Lastly, the final calculation is done by connecting A and D together and measuring their length, which approximately deviates 78.6% of the original price change of X to A.
When all these conditions are met, a successful Gartley pattern is formed.
What is a bullish Gartley?
A bullish Gartley pattern consists of four price swings, indicating an upward trend continuation and higher buying opportunities. The pattern starts at a low point X and continues to increase until it marks a temporary uptrend before finally dropping to a level that is still above the initial price level. After that, the prices finally reverse for one last time and the initial uptrend continues, providing traders with opportunities to long or buy a trade.
What is a bearish Gartley?
The inverse of the bullish pattern, the bearish Gartley pattern indicates a downtrend continuation and provides traders with higher selling opportunities. The pattern starts at point X, which is the high currency price level that continues to drop until it marks a temporary downtrend once again before finally increasing to a level that is below the initial price level. After that, the prices reverse one last time and the initial downtrend continues.
What is the Gartley 222 pattern?
The Gartley 222 pattern consists of the ABCD pattern that is followed by a significant low in downtrends and a significant high during uptrends. The 222 Gartley pattern is a continuation pattern that provides opportunities for long and short trades.
Trade the Gartley pattern to identify market trends
The Gartley pattern can be used to successfully identify support and resistance levels. It also provides traders with a market overview of where the currency pair prices are expected to move in the future. Start forex trading with Blueberry Markets to explore hundreds of currency pairs, competitive spreads, and ease of order execution. Sign up for a live trading account or try a risk-free demo account.
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