Learn to Day Trade - Get Free Mini Course

Gartley Pattern Examples And How To Trade It

I have written a few articles about price action patterns, or chart patterns and the feedback has been great and readers have found them to be helpful with their day trading. One thing I did notice was how popular harmonic patterns are. 

And many of the comments, questions and feedback I received when it came to harmonic patterns were about the Gartley pattern specifically.

So I thought I would write a dedicated post all about the this pattern. But first let me start by saying that becoming a profitable trader begins with putting in the time to learn the fundamentals of day trading and market movements – no matter what type of patterns or indicators you use, having a foundational knowledge of day trading is a must for success.

So, if you’re starting to learn about the harmonic patterns and Fibonacci levels, this is post is good place to start. I’m going to be talking about what Harmonic patterns and specifically the Gartley pattern is and how it works, and in a very simple way, since I have dedicated myself to simplify Day Trading.

Related Read: Is Pattern Day Trading Illegal?

What are Harmonic Patterns?

Harmonic patterns are based on the idea that price action on charts will show harmonic relationships and proportions that are similar to those found in music and in nature.

Harmonic patterns are intricate formations in financial markets that utilize Fibonacci ratios and geometric shapes to predict potential price reversals. They provide traders with a systematic approach for their entry and exit points when trading.

One of the main differences between harmonic patterns and normal chart patterns is that harmonic patterns involve traders looking for price structures that fit in with Fibonacci ratios and also geometric shapes.

Most of us know Fibonacci levels and the love many traders have for them. When used in the right way, those levels can be highly profitable. And the Gartley is definitely one of those harmonic patterns that incorporates Fibonacci ratios.

what is a gartley pattern
Harmonic patterns are intricate formations in financial markets and provide traders with a systematic approach for their entry and exit points.

What is the Gartley pattern?

The Gartley pattern chart is a harmonic chart pattern made by the price action of a financial instrument. and is based on Fibonacci levels. And is made to help traders identify price points where a trend is going to break out or retrace. Most traders use this pattern to draw support and resistance levels. And it’s usually more used in the forex market.

The Gartley pattern was noticed by a trader called Harold McKinley Gartley in the 1930’s. H.M. Gartley introduced this pattern as a method for identifying potential turning points in financial markets based on Fibonacci ratios and geometric formations.

How to SIMPLIFY DAY TRADING

Take the FREE Mini Course

Learn to read the markets with confidence and ease (without any financial background) in the next 7 Days

How to draw the Gartley pattern?

To draw the Gartley pattern, you first need to successfully identify it. And it’s a bit of a hassle to do it. This pattern usually resembles an “M” or a “W” shape made by the price action in a chart. Basically for a bullish Gartley pattern rules, it will have the shape of an “M” and for bearish Gartley pattern it will be a “W”.

The Gartley pattern comprises four distinct legs – XA, AB, BC, and CD – each representing specific price movements. These legs form the framework of the pattern, with Fibonacci ratios guiding the lengths and proportions of each segment.

To draw the Gartley pattern, you need to follow the next steps:

  1. The movements start in the X and continue to the A.
  2. Here’s when Fibonacci levels come to play. The total distance between A and B needs to be close to 61.8% of the size of the movement from X to B.
  3. B to C should be a retracement of 88.6% or 38.2% of the previous movements (A to B).
  4. From C to D should take about 127.2% to 161.8% of the movement made by B to C.
  5. If C to D is completed you’ll need to measure the overall movement from A to D, and it should be 78.6% of the movement from X to A.
how to draw the gartley pattern
Example of a bearish gartley pattern. Picture

Gartley pattern target

No matter which Gartley pattern you found, you should always place your profit target and stop-loss. If take the previous graph, is recommended you put your stop-loss somewhere below the D point and the X point. If you’re a more conservative trader, is recommended you put your profit target a C or halfway C. It’s pretty straightforward.

Gartley Pattern Examples

As you can see, it takes a bit of time and practice to fully identify Gartley pattern and draw it properly. Gartley pattern trading can be highly profitable. Since Fibonacci levels and Harmonic patterns are famous for their rate of success.

The biggest difference between Gartley pattern and the normal price action chart pattern is Fibonacci. Due to this, the harmonic patterns are more restricted when it comes to identifying them, but this doesn’t reduce the chances to found one. Here’s a Gartley pattern example in a trading chart:

Gartley pattern example
Gartley pattern example. Image from Investopedia

Common Mistakes with the Gartley Pattern

It’s true that the Gartley can be effective in trading. But as with everything in trading nothing is 100% and the using this pattern does carry inherent risks. And these risks can be magnified when traders make some common mistakes. 

One major mistake by traders using this pattern is misidentifying patterns due to subjective interpretation or incomplete understanding of pattern criteria. As I stated above, when drawing this pattern the first step is identifying it which can be difficult if you don’t have a good understanding of this pattern.

Overtrading based solely on this or any pattern without considering broader market context or confirmation signals can also lead to losses. As with any strategy or indicator, always remember that there are many other factors in the market that can affect your trade and price action going in the way you expect. So just because the Gartley pattern is effective doesn’t mean you should expect it to work everytime.

Another common mistake is neglecting proper risk management practices, such as setting appropriate stop-loss orders and adhering to position sizing rules. This unnecessarily exposes traders to unnecessary risk. Just because you have identified a high percentage Gartley pattern it doesn’t mean you neglect risk management measures. 

Final Thoughts

After reading through this post I am sure you will have a better understanding of the Gartley pattern, how to identify it and draw it out and how to apply it to your trading to make profit.

But as I always say any single indicator or pattern needs to take into account various other factors to confirm your trading theory and for consistent profit and success it’s always best to simplify your approach to trading technical analysis and indicators.

But it is definitely all part of building your knowledge to learn about harmonic patterns and the Gartley pattern even if you never use it in your personal trading strategy.

In this post we have also discussed the history of the pattern and how it gets its name and how it is most useful for identifying reversals or turning points in the market.

Overall as a harmonic pattern the Gartley also makes use of Fibonacci ratios and it is also one of the more popular and well used harmonic patterns in trading.

GOT QUESTIONS? LET'S CHAT
ALREADY A COURSE MEMBER?