Harmonic patterns are patterns that are traded by many traders. The harmonic pattern itself has many variations of shapes and names. However, at this time I will highlight one of the patterns, including the oldest pattern introduced by Harold McKinley Gartley.
Following the name of the founder, this pattern is called the Gartley pattern. And if implementing this pattern properly can provide better rewards than risks.
Gartley Pattern Explained
The Gartley pattern is a chart pattern that can appear specifically as a form of a harmonic pattern.
In practice, the use of this pattern has special rules which must meet certain specific Fibonacci levels to qualify as a valid formation.
HM Gartley, introduced the Gartley pattern in 1935 in his book entitled "Profits in the Stock Market".
The discussion of the Gartley pattern is found on page 222, therefore the Gartley pattern is also named as pattern 222 or Gartley 222 in refers to this pattern discussion page.
H.M Gartley calls this pattern as one of the best trading opportunities on the market.
If you pay attention to this pattern forming the letter M / W on the chart, the formation of the letter M / W depends on whether it is a bearish or bullish Gartley pattern.
The Gartley pattern has five points on the chart. The points are marked with X, A, B, C, and D. Below bullish and bearish Gartley patterns appear.
The pattern starts from point X then forms four swings until point D is completed. It should be noted that D is not a point, but is a zone where there will be a price reversal called the Potential Reversal Zone, or PTZ for short.
Gartley Pattern Bearish
The Gartley bearish pattern has a shape like a letter “W”, you will easily remember it with that illustration.
Price movements form a bearish Gartley pattern if met with the requirement
AB length 61.8% of length XA, and length from A to B does not differ much from the length of C to D.
Length of BC around 61.8% and 78.6% from the length of AB.
Length CD around 127.2% to 161.8% from BC length.
Gartley Pattern Bullish
The Gartley bullish pattern has a shape like a letter “M”, you will easily remember it with that illustration.
Price movements form a bullish Gartley pattern if met with the requirement
Length AB around 61.8% of length XA, meanwhile the length of A to B does not differ much from the length of C to D.
Length of BC around 61.8% and 78.6% from the length of AB.
CD length around 127.2% to 161.8% from BC length.
Gartley pattern rules
In trading practice, the Gartley pattern has specific rules using the Fibonacci levels. Because this pattern is one of the harmonic pattern families. These rules must be fulfilled if the trader wants to apply the Gartley Pattern trading strategy properly.
Now we start with the component structure of the Gartley pattern:
XA: There are no special requirements for XA price movements, where X is the starting point for the formation of the next pattern.
AB: The rule at point AB must be 61.8% of the size of XA, it doesn't have to be the same, but almost.
If point XA is a bullish movement, then point AB must reverse the price movement up to the Fibonacci 61.8% of XA. The same rule on point XA on a bearish move.
BC: The price movement in BC should reverse the movement of AB. And point BC must meet specific rules at the 38.2% Fibonacci level, or the 88.6% Fibonacci level of the previous AB leg.
CD: CD is the reverse of the movement of BC. If BC is 38.2% of AB, then CD must comply with the 127.2% extension rule of BC. If BC is 88.6% of AB, then CD must be a 161.8% extension of BC.
AD: When CD moves are complete, then measure the AD movement. A valid Gartley on the chart will show AD moves, fulfilling the 78.6% retracement rule of XA moves.
Illustration image below will help you to understand for Gartley pattern rules.
The five rules of the Gartley pattern must meet to get a valid pattern, giving great accuracy.
How to Draw Gartley Pattern
To draw a Gartley pattern, following the rules that become the rules use the Gartley pattern to get a valid pattern.
The first step is to find the potential location of the Gartley pattern.
The second step is to measure the potential for the harmonic pattern, it may be confusing at first to determine whether this is a Gartley pattern or an ABCD pattern. or other harmonic patterns.
The third step is order execution, in this case, you are looking for zone D as a trigger for making entry points.
After you find the location of the initial point XA of the Gartley pattern, then you need a Fibonacci retracement for the next step to find and measure potential Gartley pattern.
The picture above is an example of a Gartley pattern called cypher pattern on the USDJPY pair at the H4 timeframe with the Tradingview chart.
Finding the XA point on the MetaTrader 4 chart can be done by using the Fibonacci tool which is available by default on the platform.
You only need to drag the point that you think is the starting location of the Gartley pattern with the next peak or valley point.
Entry and Exit with signals from the Fibonacci Gartley Pattern
Gartley's Fibonacci pattern signals are very accurate with records of all the legs meeting the rules.
For the sake of trading effectiveness, avoid signals from patterns that are forced or do not meet requirements.
Below is an example of using the Fibonacci Gartley pattern with good signal quality:
How to determine the entry point is a few pips from the position point D as the last point.
You can use pending orders so that orders are executed in the potential reversal zone.
However, if you choose instant execution, make sure that the price has bounced leaving point D, close to looking to the shape of the candle for a confirmation signal.
For Stop Loss, you can place a few pips from the starting point of X, assuming that the XA leg represents the highest volatility in the period.
Simply put, if the price still has time to move past point X, then it is better for you to cut-loss rather than hold your position in uncertain conditions.
Gartley pattern indicator mt4 free download
For traders who want to easily find the Gartley pattern can use the Gartley pattern indicator which is designed by experts.
All you have to do is download the Gartley pattern indicator mt4 file, then install it on your mt4 platform.
I have found the Gartley pattern indicator mt4 which you can download again for free.
This indicator will form a blue color when the Gartley pattern appears, this makes it very easy to determine trading positions by focusing on point D which is the Potential Reversal Zone.
Below image Gartley pattern indicator appear plotted on USDJPY timeframe H1
If this indicator does not detect the Gartley pattern, the blue color does not appear on the indicator screen, making it very easy for you to recognize the Gartley pattern without having to confuse drawing it manually.
Gartley pattern trading strategy example
After you know the rules of the Gartley pattern, it's time to take advantage of this harmonic pattern approach to be applied to the real forex market conditions.
How to enter, how to place a stop loss, and how to determine targets in the Gartley pattern trading strategy, let's continue.
How to entry the Gartley pattern
As a first step before making an entry in a Gartley trade, we will identify the pattern and then confirm its validity.
If you are drawing manuals, you will need to outline the four price swings on the chart. Then ensure that those swing points respond to their respective Fibonacci levels according to the Gartley pattern rules.
To facilitate identification you need to mark points X, A, B, C, and D.
This will make it easier for you to take measurements and have a clear picture of the Fibonacci parameters.
If the pattern that is formed is Gartley Bullish then you can open a Buy position by identifying these two conditions:
CD is in the support zone at 127.2% or 161.8% Fibonacci level of the BC movement.
The price has bounced in the bullish direction of the respective Fibonacci levels.
Conversely, the rule applies to bearish Gartley but you open a Sell position.
Gartley Stop Losses
However, with the appearance of a Gartley pattern, either bullish or bearish, it does not mean that it is certain that the price will then move according to expectations.
You are advised to always use a stop loss.
This is a way of protecting your account from unexpected price movements.
How to place your stop loss should be placed just below point D if you open a Buy position from the Bullish Gartley pattern.
Otherwise, your stop-loss order should be placed just above point D if you open a Buy position from the Bearish Gartley pattern.
Below is an illustration for stop-loss Gartley Pattern bullish.
Why do you only need to place your stop loss close to point D? because according to strict risk management principles are much more resilient when the Gartley pattern fails.
Gartley Take Profit
After you have opened a position accompanied by placing a stop loss, you expect the price to move as expected. Of course, you have a target profit from your position, but sometimes you have to wait for how long you hold the position.
The following is a profit target that you can plan by applying this Gartley pattern trading strategy.
When the price has bounced in zone D and moves as expected, you can place targets at swing target 1, target 2 targets 3, and target 4 concerning the Fibonacci levels. This applies if you open 4 positions after the complete Gartley pattern formation.
If you think that the momentum of the movement still allows for a bigger profit, you can hold your one small position until the momentum weakens and reverse.
Gartley bullish trading example
The image above is GBPUSD, given the fact that the necessary parameters have been met, the price may move up after bouncing on point D.
You can open 4 positions with position size adjusted to risk management, or only use the smallest lot for all position.
The stop loss is placed below point D in this case it can place the stop loss at 1.25250.
From these four positions, you can set a target 1, target 2, target 3, and target 4. If target 1is met, to secure all positions you can modify the stop loss at the break-even point. Then wait for the next target to be reached.
At target 4 you can hold the position until the trend has started to weaken and there is a possibility of a trend reversal.
Bearish Gartley trading example
The next example uses the Gartley pattern indicator plotted on the USDJPY pair.
Look at the chart image below.
In the picture above the Gartley pattern, the indicator has formed a Gartley pattern which is marked in blue between the XABCD points.
The pattern above is Bearish Gartley, so short positions are the recommendation for this trade.
From the image above, an arrow pointing downwards has appeared, giving a Sell signal.
You can place the stop loss outside the red box or above point D.
If you only open one position then the recommended target is at point A. But if you open 4 positions you can diversify the target on target 1, target 2, target 3, and target 4.
Does harmonic trading work?
Gartley pattern trading provides a high potential reward when the completed pattern is valid.
But that doesn't mean that you have to trade with high risk with a big profit target. However, planning money management in a disciplined manner is better than acting recklessly in trading.
You can explore multiple pairs to find Gartley patterns, but maybe not all patterns that appear will always move according to Gartley's theory.
In certain conditions, price movements can change rapidly, either because of the influence of news, or extraordinary conditions in the forex market.
The Gartley pattern success rate
Citing data from Geocities.ws Gartley pattern success rate can be up to 80% on the Gartley pattern for each harmonic pattern (Gartley, Butterfly, Crab, Bat). Some cases even give a success rate of 90%.
Gartley patterns can appear as many as 400 patterns in a day spread over multiple pairs and multiple timeframes.
This is one advantage of the Gartley pattern in providing trading signals to traders.
However, even though the Gartley pattern gives a success rate above 80%, will you get the same results?
The definite answer is no, you may still need time to choose a valid pattern with more than 80% accuracy.
Even if you don't get a success rate above 80% then the variation is between 60% and 75% - which of course is quite profitable.
Your success will depend entirely on your decision when to enter, place your stop loss and when to exit.
Understanding the Gartley pattern of success rate, I believe it will trigger you to study with more discipline so that you can achieve a success rate above 80%.
Gartley pattern animal variant
During its development, the Gartley pattern then has variations by taking the name animal, such as the Crab pattern, Butterfly pattern, Shark pattern, and Bat pattern.
Harmonic pattern lovers like Scott Carney finding the Crap and BAT patterns, Shark pattern while Bryce Gilmore finding the Butterfly pattern.
Gartley Crab Pattern
In 2000, Scott Carney, who is a harmonic pattern trader, discovered the Gartley variation pattern named "the Crab"
Scott Carney claims that this pattern is the most accurate of all the existing harmonic patterns. The reason he is because of the extreme Potential Reversal Zone is sometimes called a “price better reverse from XA's movement.
This pattern has a high reward and risk ratio because you will be placing a very thin of stop loss.
Crab pattern rules
The best crab pattern must meet the following parameters:
AB movement is a retracement of 0.382% or 0.618% of the XA movement.
BC movement can be a retracement of 0.382% or 0.886% of the AB movement.
If the retracement of BC movement is 0.382 from AB, then CD is at least past X and is in the range of movement 2.24% from BC.
If the movement of BC is 0.886% of move AB, then CD must have a movement of 3.618% of the movement of BC. While the movement
CD is in the range of 1,618% of XA.
Fibonacci Bat Pattern
In 2001, Scott Carney found another variant of the Harmonic Price Pattern called the "Bat pattern."
Bat pattern rules
The AB movement is 0.382% or 0.500% retracement of the XA move.
The BC movement is a retracement of 0.382% or 0.886% of AB's movement.
If BC retracement is 0.382% of AB, then CD should be 1.618% extension of BC's move.
If the BC movement is 0.886% of AB, then CD should be 2,618 extensions of the BC movement. And the CD must be 0.886% retracement of XA.
Fibonacci Butterfly Pattern
The butterfly is a pattern founder by Bryce Gilmore.
The perfect Butterfly pattern is determined by the 0.786 retracements of the AB move of the XA price move.
Butterfly pattern rules
AB's point movement should be the 0.786% retracement of XA.
BC movement can be a retracement of 0.382% or 0.886% of the AB movement. If BC retracement is 0.382% of AB, then C to D must be 1.618% of BC.
However, if BC is 0.886% of AB's movement, then CD should extend the move to 2.618% of BC's move. CD must be 1.27% or 1.618% of XA's move.
The Cypher pattern is a price pattern that also indicates a potential trend reversal.
According to the founder, Darren Oglesbee claimed if this pattern highly accurate to given signal compared with another pattern.
The trading signal will be confirmed when the conditions for the Cypher Pattern formation are met.
The Cypher Pattern is more unique than the other XABCD Harmonic Patterns (Butterfly, Gartley, Bat, and Crab) due to the inverted leg position.
Chyper pattern rules
The Chyper pattern also follows the rules that are the parameters of determination so that the accuracy of the price reversal signal is accurate. The Cypher Pattern should following Fibonacci line drawing rules:
In the chyper bullish, the XA leg is pulled from a low price point that moves to a significant high (swing low). In contrast, in the chyper bearish, XA's leg is pulled from a significant swing high.
AB line is the Fibonacci retracement of 0.382 to 0.618 from the XA leg.
The BC line is the Fibonacci departure of 1.272 to 1.414 from the XA leg.
CD is the last leg with 0.786 retracements of the XC swing.
The Shark pattern was also popularized by Scott M. Carney in his book entitled "Harmonic Trading" in 2010.
Visually, the pattern looks similar to the Cypher Pattern; the highs and lows are always higher than the previous peaks and valleys.
What distinguishes the Shark pattern is that it starts from point 0, while the Cypher pattern starts from point A.
These five points of the reversal pattern form a candidate for the 5-0 pattern frame (0, X, A, B, C, D). Next, the last leg (BC) looks longer as it is pulled from a 131% extension of the first leg (0X).
An important point in the Shark pattern is its accuracy to detect key Resistance or Support from the initial point (0) to point C.
Where the price will pass through this important zone with a strong prediction that the movement will bounce towards the reversal.
Shark pattern rules
Shark pattern rules measure the legs of the Shark Bearish harmonic pattern through the Fibonacci Retracement and Extension lines.
Leg 0X is the first leg to be drawn from the first Swing High (top to bottom).
XA leg is a 38.2% to 61.8% retracement of the 0X leg.
AB line is drawn from the Fibonacci Extension along 113% to 161.8% of the XA line.
The length of the BC line is the Fibonacci Extension 113% of the first line, 0X.
The Gartley pattern is a family of harmonic patterns that many traders use to approach market analysis.
With an accuracy rate of more than 80%, harmonic patterns are one of the most popular methods of analysis and are studied by professional traders.
The Gartley pattern is also called Pattern 222 which refers to the book page where a discussion of the Gartley pattern is written.
Many have even written the Gartley pattern in a downloadable pdf version.