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Swing Trading Boston Forex: Profits With Gartley Patterns – The Gartley pattern is a type of harmonic pattern recognized on the chart using fixed Fibonacci ratios in trading.
This is the most commonly used harmonic pattern in forex technical analysis. This is a natural pattern that shows retracement and impulsive moves. Due to the use of the Fibonacci tool, most technical analysts are interested in this pattern to use it for trading.
Swing Trading Boston Forex: Profits With Gartley Patterns
Fibonacci is a natural tool. Everything in nature follows a certain kind of pattern. Therefore, it is logical to use the Gartley pattern to forecast the market.
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Gartley pattern consists of four waves in which one wave is an impulsive wave and the other three waves make a retracement structure of this pattern.
Remember, you should try to find the five points XABCD instead of calculating waves. I used the word “wave” for you to make things clear.
Every point in the Gartley pattern must be at some Fibonacci level. If a single point does not follow the Fibonacci rule, avoid that setup.
Remember that you should try to find the bearish pattern at the top of the uptrend or in the overbought conditions.
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These are the four steps; you must follow to find this pattern on the chart. If any of the above steps fail, please avoid that setup.
This indicates that a new bullish trend is about to begin. It consists of five points like a lumpy pattern, but the difference is the location of each point.
Remember that you should try to find bearish Gartley patterns in the bottom or in oversold conditions to get a high probability pattern.
It marks the completion of a wave and the beginning of the next wave. If you can look at this pattern like a professional trader, then you will see two main waves.
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XA wave is an impulsive wave and AD is a retracement wave. The first wave represents impulsiveness and the next three waves represent retracement in the market. Look in the image below for a better understanding.
This structure of this pattern shows that it is logical to trade this pattern. After understanding the basics, you will be able to correctly identify this pattern on the chart.
After identifying the harmonic chart pattern, the next step is to look for a trading plan. Without a proper trading plan, you will end up in losses.
Because if you don’t know where or when to open or exit a trade, you will do it randomly. And this is not a way to do technical analysis.
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When you will answer all the above questions, then you are good to trade on a live account or practice on a demo account.
For example, you should look for a bearish Gartley pattern at the bottom of a trend. You should avoid bullish chart patterns if the market is already in an overbought condition. And avoid trading bearish chart patterns if the market is in an oversold condition. Because there are more chances of reversal in an overbought or oversold condition.
When the pattern will be completed at point D, then wait for the formation of a candlestick pattern. A candlestick pattern will confirm the direction of the trade and it allows you to wait until the trend reverses.
In case, if wave CD returns to 78.6% Fibonacci level, stop loss will be above/below the point X.
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If wave CD returns to 38.2% Fibonacci level, the stop loss level will be a few pips above/below the candlestick pattern
Point A is a price level that will act as a take profit level. But you can extend the take profit level using the 1.618 Fibonacci extension level of the XA wave. This will increase your risk-reward ratio.
The best time frames to trade harmonic patterns are 15 minutes to 4 hours for swing and intraday traders.
Gartley is the most traded harmonic pattern, but due to Fibonacci restrictions, you will not be able to find this pattern more often than other chart patterns. But you should not miss a trading opportunity once you have identified this chart pattern in a currency pair or cryptocurrency.
Harmonic Patterns Forex Trading
It will draw real-time zones that show you where price is likely to test in the future. Learn the key harmonic patterns to use in your technical analysis here, plus how to trade using harmonic chart patterns.
Harmonic patterns are advanced geometric chart formations formed using the ratios found in Fibonacci theory. Essentially, harmonic traders take a series of Fibonacci retracements and extensions and plot them on a chart to predict future price action.
The theory behind harmonic patterns is the same as any other type of chart pattern: that price action that reliably led to a particular move in the past will continue to do so in the future.
However, instead of forming over a handful of sessions (like candlestick patterns) or making a broad shape (like chart patterns), harmonic patterns tend to consist of a set of distinct movements – with strict rules to which each stage must comply.
Harmonic Gartley Pattern: A Trader’s Guide
Harmonic patterns can work, and many successful trading strategies are built on them. However, with such strict rules to follow, they are prone to failure – which is why they are generally considered more advanced than other areas of technical analysis.
What this means in practice is that understanding the Fibonacci theory behind harmonic patterns is key before you start trading them. You will also need to maintain strict risk management at all times, to ensure that a failed pattern does not cost you too much.
You may even want to start with a risk-free demo account, which allows you to try out harmonic patterns without putting up any of your own capital.
To trade a harmonic pattern, you open a position as soon as the pattern completes, to take advantage of the market’s next predicted move. Before you trade, however, you’ll want to confirm that the pattern is complete—and ensure that each move conforms to the strict Fibonacci rules we outline below.
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Now that we’ve covered the basics, let’s look at the most important harmonic patterns that you may encounter in your technical analysis.
Many of these patterns were first identified by the same trader: Scott Carney, who coined the term harmonic patterns and popularized their use over the last few decades.
The ABCD pattern consists of three lines moving between four points, labeled A, B, C and D – hence the name. This is one of the simplest harmonic patterns you will come across.
In an ABCD, the market starts with a move from A to B, which can be up or down. The move from B to C is then ‘corrective’ – meaning it moves against the first AB line. Then finally we move the C to D, which again lines up with AB one.
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The theory is that after completion, the market should make another corrective move, which you can use to target profit.
ABCDs can be either bearish or bullish depending on the direction of the swings. If the pattern points up (so AB points up and B and D are up) it is considered bearish, and if it points down (with AB pointing down and A and C up) it is bullish.
The Gartley harmonic pattern is named after the trader who first identified it, H.M. Gartley. It is essentially an ABCD with an extra movement in front of it, which is typically marked as ‘X’. The move from X to A sets up a trend before the rest of the pattern takes hold, which should then continue after the pattern is complete.
Most harmonic traders refer to the area at D as a ‘potential reversal zone’, or PRZ for short. This is not a specific point, but an area in which a turnaround is likely.
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You can think of a Gartley as similar to a flag pattern, but with stricter rules governing the movements.
Like the Gartley, the bat pattern consists of an XABCD move, with a large trend from X to A returning from A to D, then continuing once the pattern is complete.
But this time it gets its name because it looks like a bat on the map. This is because the retracements involved are slightly different from the Gartley pattern, giving it a different overall look.
Scott Carney has stated that he believes the scratch pattern is the most reliable of all the harmonics. Like the bat pattern, the crab is essentially similar to a Gartley, but with different ratios involved – again indicating that the original XA move will resume at D, a PRZ.
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The crucial difference in a crab is that D is an extension of the original XA move, meaning that point D is actually above (for bearish crabs) or below (bullish) point X.
There is also the ‘deep scratch’, a variant of the scratch pattern where point B is an 88.6% retracement of XA. It actually combines the crab and bat patterns.
Another harmonic based on the Gartley pattern is the butterfly, which is formed from a Gartley but with a 78.6% retracement of XA at AB. Like the crab, it means
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