How Gartley pattern is constructed and how to trade it
I pay quite much attention to trading harmonic patterns in my blog for beginner traders. Today, I’d like to delve in its origins. I want to pay tribute to the author of the system, the man who started all of this. I mean Harold Gartley. His books were as expansive as cars at the beginning of the 20th century. Common people believed the book to uncover the Holy Grail that would provide well-off being for them and their offsprings. Something that you now can learn for free was very expansive just a century ago. Does it mean that harmonic patterns are not efficient? No, it doesn’t! Any dish needs a good cook.
Harold Gartley’s major development became the same name pattern that is now sometimes called Gartley Butterfly. It has a lot in common the perfect Butterfly pattern, described in one of the previous articles. Only correction levels and targets are different. In the given case, it is about 61.8% correction and the target profit at 78.6% from the wave XA. If the attack of bears in the bullish market or bulls in the bearish market doesn’t stop at this level, one can suggest Gartley pattern transform into Crab pattern
In the EUR/JPY 4H chart, you see 61.8% correction to the downward wave XA. When the pair quotes moved back to the convergence zone at level 78.6%, a trader, applying harmonic trading, should have assumed Gartley Butterfly. Indicators data can be used as a confirmation of a likely reversal. The divergence between the extremes in the price chart and MACD indicator proves to be quite efficient.
Gartley pattern in EUR/JPY
Divergence between EUR/JPY price and MACD indicator
You can trade the pattern in the same time period (for example, the strategy, based on the breakout if the diagonal resistance at the bottom border of the upward trading channel, proves to be quite good). However, you know the trading system Two Graphic Pattern Screens you can exploit all its major advantages. Remember, it is about a substantial Profit factor. Switching to the 30-minute timeframe for the EUR/JPY pair enabled the trader to identify a combination of reversal patterns Three Little Indians and 1-2-3. The short trade was entered, based on the breakout of the latter pattern. A reasonable stop loss can be put at the level of the swing’s peak. In the example of selling the euro to the yen, it is about 50-60 points.
Strategy for trading Gartley pattern
To identify the target profit for sell positions, you switch to a longer time period (240 minute) and apply your knowledge of harmonic trading. Working out of the Shark pattern yielded the profit of about 600 points. The profit factor here is more than 10. Remember about the rule “keep losses low and let the profit grow”.
Gartley and Shark patterns in EUR/JPY chart
It is always hard to be the first. With this respect, Harold Gartley deserved a monument during his time. His studies formed the basis for a separate field in technical analysis, which is now successfully exploited by individual traders, as well as large investment banks and hedge funds. The matter is that just automated following its rules rarely yields positive results on the long-term investment horizon. Market is like a living being, it is changing all the time; so, you need to be creative to tame it.
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Price chart of EURJPY in real time mode
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