Dear Friends,
Financial markets are a place full of unlimited opportunities and can benefit us in many ways in our lives. With the right steps taken, we can achieve financial goals, build wealth, and secure our future. However, financial trading is also a complex field, requiring the right knowledge and tools to succeed. Harmonic patterns in technical analysis are among the most eye-catching of these tools. Today, we will examine one of them, the "Gartley harmonic pattern". In our article, we will delve into what the Gartley harmonic pattern is, how it is defined, and how it can be used in trading in detail.
What is the Gartley Harmonic Pattern?
The Gartley pattern is one of the harmonic patterns in
technical analysis used to predict price direction. The Gartley pattern
consists of five main price points: X, A, B, C, and D. This pattern can be
observed in both bullish and bearish trends. Like other harmonic patterns, the
Gartley pattern also has two types:
- Bullish Gartley Harmonic Pattern
- Bearish Gartley Harmonic Pattern
Both types of Gartley patterns are used to predict trend
reversals. The Bullish Gartley harmonic pattern indicates a upward reversal in
price, while the Bearish Gartley harmonic pattern reflects a downward movement
in price.
Many technical analysis patterns used in financial markets
are named after the individuals who first defined or popularized them, or they
are named based on their resemblance to objects or living beings. The origin of
the name "Gartley harmonic pattern" also stems from these reasons.
The pattern's name "Gartley" comes from H.M. Gartley, who was the
first to define and analyze this pattern.
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| The Gartley Harmonic Patterns |
How is the Gartley Harmonic Pattern Defined?
The Gartley pattern has a five-point structure on the price
chart. Points X, A, B, C, and D are determined based on the past movements of
the price. The price movements between these points are associated with
retracements and extensions occurring in the market based on Fibonacci ratios.
The Bullish Gartley pattern is characterized by the overall appearance of the
price movement resembling the letter M. In the Bearish Gartley pattern, the
overall appearance of the price movement resembles the letter W.
Bullish Gartley Pattern Definition:
- XA Movement: The Bullish Gartley Pattern begins with the XA movement. This movement is the first stage of an uptrend and usually starts from a low price, then rises.
- AB Correction Movement: After the completion of the XA movement, a correction movement called AB occurs. This movement is associated with Fibonacci retracement levels of the XA movement and typically occurs up to a specific Fibonacci level like 61.8% or 78.6%.
- BC Bullish Movement: Following the AB correction movement, the BC movement occurs. This movement rises from the starting point of the XA movement to a Fibonacci extension level. The BC movement is typically completed at 38.2% or 88.6% Fibonacci extension levels of the AB movement.
- CD Down Movement: After the completion of the BC movement, the CD movement begins. The CD movement occurs from the completion level of the BC movement to a Fibonacci retracement level. The CD movement is typically completed at 127% or 161.8% Fibonacci extension levels of the AB movement. At the end of the CD movement, the Bullish Gartley Pattern is completed, and an upward reversal in price is expected.
Bearish Gartley Pattern Definition:
- XA Movement: The Bearish Gartley Pattern starts with the XA movement. This movement is the first stage of a downtrend and usually shows a downward movement starting from a high price.
- AB Correction Movement: After the completion of the XA movement, a correction movement called AB occurs. This movement is associated with Fibonacci retracement levels of the XA movement and usually rises up to a specific Fibonacci level like 61.8% or 78.6%.
- BC Down Movement: After the AB correction movement, the BC movement occurs. This movement shows a downward movement from the starting point of the XA movement to a Fibonacci extension level. The BC movement is typically completed at 38.2% or 88.6% Fibonacci extension levels of the AB movement.
- CD Upswing Movement: Following the completion of the BC movement, the CD movement begins. The CD movement rises from the completion level of the BC movement to a Fibonacci retracement level. The CD movement is usually completed at 127% or 161.8% Fibonacci extension levels of the AB movement. At the end of the CD movement, the Bearish Gartley Pattern is completed, and a downward reversal in price is expected.
As seen, both types of Gartley harmonic patterns are defined
using specific Fibonacci ratios. The Bullish Gartley pattern marks the end of a
downtrend in financial markets, while the Bearish Gartley pattern indicates the
end of an uptrend.
How to Trade the Gartley Harmonic Pattern?
The Gartley pattern plays a significant role in predicting
trend reversals and capturing buying or selling opportunities in financial
trading. When the Bullish Gartley pattern appears on the price chart, buyers
enter the market, while sellers enter the market when the Bearish Gartley
pattern is seen, thus taking advantage of the opportunity. It is very important
to confirm the signal given by the pattern. For this, we can use volume,
momentum, and other indicators.
When the Bullish Gartley pattern is completed, it is likely
that the trend will reverse and move upward. At point D, opening a long
position is generally preferred.
Entry (Buy): The exact price at point D or a price level
near this point can be used for buying.
Stop Loss: The stop loss level is usually set slightly below
point D.
Target: Target prices can be determined using Fibonacci
retracement levels or other technical analysis tools.
The daily Australian Dollar/New Zealand Dollar (AUD/NZD)
chart below shows an example trade based on the Bullish Gartley harmonic
pattern. If you'd like to examine the chart details more closely, you can check
the image below:
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| The Bullish Gartley on the AUD/NZD chart |
When the Bearish Gartley pattern is completed, a reversal of
the trend leading to a downward movement is often seen as inevitable. Traders
commonly opt to initiate a short position at point D.
Entry (Sell): A price level near point D can be used for
selling.
Stop Loss: The stop-loss level is usually set slightly above
point D.
Target: Target prices may be established by employing
Fibonacci retracement levels or alternative technical analysis methods.
The trade example depicted in the 4-hour chart of the US 500
Index is derived from the Bearish Gartley harmonic pattern. For a more detailed
examination of the chart's specifics, please refer to the image below:
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| Bearish Gartley on the US 500 Index chart |
Note: It's important to always be mindful of the complexity of financial markets. No technical analysis method guarantees absolute success. Avoid relying solely on Gartley harmonic patterns for trading decisions. By incorporating other technical indicators and fundamental analysis information, you can make more robust and informed trading decisions.