Gartley Patterns indicator |
In 1935 H. M. Gartley published the book, where mentioned about the graphical model “Butterfly”, and further this idea was developed by Scott Carney, and Larry Pesavento.
Gartley Patterns are based on Fibonacci numbers, and should fulfill the following regulations.
The first thing to find is an impulsive move up from a swing low. Gaps on the way up are great sings of impulse. The first step is to identify a fairly one way move [X to A]. Followed by an initial reaction [A to B]. The next leg is where the math begins [B to C]. 1. Calculate the length of the A to B leg [A minus B]. Now subtract that number from the top of the point C swing high. This process can be seen vusually by looking at the redlines. As you can see this step targets a reversal low around 50. Here’s the final step to confirm a point D reversal buy point. Point D should print at a key Fibonacci retracement level of the X to A leg. After doing some quick math the closest level is found at the 0.618 retracement of X to A. That number is at 49.72 right at the ab=cd. The trader tries to buy as close to the reversal “range” as possible. The first trading target is a 0.618 retracement of the C to D leg [56.82]. The bearish gartley reversal pattern begins with a fairly straight one way move off of a swing high [in many cases it is from an all-time high]. The next key to the pattern is to check the Fibonacci ration of the B to C leg. It must be within a sniff of one of the key retracement ratios of the A to B leg. Huh? Let’s take it step by step. First measure what price distance the A to B leg was in points and write that number down. Now do the same for the B to C leg. Divide the B to C leg number by the A to B number. [(length of B to C leg) / (length of A to B leg)]= ratio. That ratio should be about .382 .500 .618 or .786 The following process is the key to the pattern. 1st calculate the price length of the A to B leg [B-A] and add that number to the swing low of C to project where AB=CD. I drew equal triangles on the chart to help visualize this process. Next calculate the length of the B to C leg [B-C] and then take that number and multiply it by 1.272 and 1.618; add those numbers separately to the swing low C to get a range. There is one last ingredient to the gartley reversal pattern that is crucial to it’s success. Point “D” or it should be said leg A to D should retrace to within a sniff of either .618 or .786 of the X to A leg. As you can see the .618 retrace of the X to A leg also falls within the projected “range” for a reversal to occur. This is the final factor that must exist. A successful bearish gartley. The first trading target was reached at 299, the .618 retracement of the C to D leg. The second target is at the .618 retracement of the A to D leg [the dot at 291]. The safest the most consistently met target is the .618 retracement level of the C to D leg. One technique is to exit partially at the 1st target then tighten stops on the remaining position and hold out for trading target two. At this point on the chart what we have is a move off of a bottom [X to A] followed by a deep retracement leg [A to B] which retraced to the .786 fibonacci level. The B to C leg was shallow and with the last bar on the chart in a free fall the trader can now attempt to make a case for where this next leg down might end for a reversal. The first measuring step to try and find out where the C to D leg will reverse from is easy. Simply subtract the length of the A to B leg from the C swing high. We already have the AB=CD target number around 40. Now what we want to find out is whether that target is at a harmonic number. Most successful butterfly reversals occur at either the 1.272 or 1.618 extensions of the X to A leg. Prices decline into the buy zone and in the process forms a bullish butterfly bottom. The chart is harmonic at the 1.272 extension of X to A and AB=CD. Gartley Patterns indicator ZUP_v76_5-0_mod Gartley Patterns indicator Search_patterns_v6 |
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