{"id":25696,"date":"2018-04-03T17:06:14","date_gmt":"2018-04-03T11:36:14","guid":{"rendered":"http:\/\/www.icmarkets.com\/blog\/?p=25696"},"modified":"2020-08-29T14:34:47","modified_gmt":"2020-08-29T04:34:47","slug":"trading-the-gartley-harmonic-pattern","status":"publish","type":"post","link":"https:\/\/www.icmarkets.com\/blog\/trading-the-gartley-harmonic-pattern\/","title":{"rendered":"Trading the Gartley Harmonic Pattern"},"content":{"rendered":"

Updated August 2020<\/strong><\/p>\n

While some disregard harmonic trading, others are incapable of operating without it.<\/p>\n

The Gartley pattern, sometimes referred to as a Gartley<\/em> 222<\/em>, was introduced by H.M. Gartley in his book Profits in the Stock Market<\/em>[1]<\/a>, in 1935. Nowadays, however, many traders follow the teachings of Scott M. Carney. In his book, The Harmonic Trader<\/em> (1998)[2]<\/a>, Carney assigns specific measurements to the Gartley structure using Fibonacci ratios, and is now considered the industry standard<\/em> among technical analysts.<\/p>\n

Carney also coined the term Harmonic Trading<\/em>, and is behind the development of other harmonic patterns, such as the Bat pattern, the 5-0, the Shark, the Crab pattern and many others[3]<\/a>.<\/p>\n

Harmonic Patterns<\/strong><\/h2>\n

Harmonic patterns are defined by specific price structures, operating on the premise that Fibonacci sequences can build identifiable structures, areas in which traders can initiate trades from.<\/p>\n

Breaking Down the Gartley Pattern<\/strong><\/h2>\n

Locating the Gartley pattern, particularly in the beginning, can be a tricky<\/em> spot. For that reason, it is helpful to work with defined steps.<\/p>\n

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(Figure A \u2013 Bullish Gartley Pattern)<\/p>\n

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(Figure B \u2013 Bearish Gartley Pattern)<\/p>\n

Step 1:<\/u><\/strong> Locate the impulse leg. This is a strong move in either direction. It can be a mixture of both bullish and bearish candles, yet it must be a defined<\/em> move. The beginning of the impulse move is labelled X and the tip as A.<\/p>\n

Step 2:<\/u><\/strong> At this point, a retracement is needed: the B leg. Using the Fibonacci retracement tool, measure from the X leg to the A leg. The Fibonacci retracement ratio targeted here is a 61.8% value.<\/p>\n

Step 3:<\/u><\/strong> Using the Fibonacci retracement tool again, measure from the A leg to the B leg. The termination point is flexible, as long as price does not exceed point A. According to Carney, price should conclude between 38.2%-88.6%. This is your C leg.<\/p>\n

Step 4:<\/u><\/strong> Here you\u2019ll look for the final leg to form: the D leg. This is also the point traders formulate a potential reversal zone (PRZ). The PRZ must include a symmetrical<\/em> AB=CD, where waves A and B equal that of C and D, and the all-important 78.6% retracement ratio of legs X-A. These are the minimum requirements for a valid Gartley. In addition, Carney looks at BC projections as a complementary ratio within the Gartley PRZ that must not exceed 1.618.<\/p>\n

Figure C shows a EUR\/USD H4 chart, boasting a clear bearish Gartley pattern. The PRZ contained a symmetrical AB=CD formation and a 78.6% Fibonacci retracement ratio. In addition, a 1.27 BC projection was seen.<\/p>\n

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(Figure C)<\/p>\n

Gartley Pattern: Trade Management<\/strong><\/h2>\n

While many traders define their own rules of engagement, the following guidelines may help provide a foundation for newer traders:<\/p>\n