Trading the Gartley Pattern
Patterns by themselves do not necessarily lead to consistent outcomes. The development of chart patterns alerts the trader that a range of outcomes is more likely than at other times. As price moves towards a well established resistance level, the trader pays more attention to the stock, ready to place a buy order if prices move a few ticks above the level. He cannot buy until others have bought because he wants to follow the action, not create it. When prices retreat into the body of the support and resistance band, or other chart pattern, the trader shifts his attention elsewhere. Chart patterns signal the probability of action.
The Gartley pattern is a continuation pattern, which was made popular by trading veteran Larry Pesavento who added the Fibonacci ratios to this pattern. Larry had stated that the Gartley is “one of the best patterns I ever found,” and it certainly is an extremely accurate pattern.
It is a pattern with low risk and a very high success ratio, which gives it an excellent risk-to-reward ratio. It follows the Fibonacci ratios quite accurately and that is the pattern’s main advantage, as we can anticipate the reversal point and the target where price should ultimately go.
The key to trading this pattern, is successfully identifying it, and waiting for it to complete to enter a trade.
Now since price keeps moving in waves, and we always have retracements, reversals within the larger pattern, it does become difficult to correctly identify a Gartley pattern. So what we want to do in these notes is to find that particular key element which tells us that a Gartley pattern is forming, and then set our targets accurately to manage the trade. As we can see in the chart below, I have marked out the bullish Gartley pattern with red lines. This is also called a "Bat pattern", since the overall appearance is similar to a Bat. The basic concept of this pattern is that in an ongoing uptrend, price forms certain retracement patterns, which then leads to a continuation of the trend.
Now let us first understand the formation of this pattern.
In an ongoing uptrend, we have a retracement of price towards the down side, from where we start to