The Gartley Pattern Explained: How To Use It In Your Forex Trading Efforts

As you probably already know if you’re into forex trading, the so-called Gartley pattern is a technically-derived indicator that is established on the Fibonacci chain of numbers and is used to determine decisive levels of resistance and support in financial markets.

However, while the Gartley pattern is a distinctive, clear-cut pattern and only occasionally appears in the forex markets, being patient and waiting for the pattern to appear can be very rewarding in trading because it reduces risk because of the trade's precise nature. 

However, because it is a somewhat more complicated method of trading when compared to other patterns, it is not advised for newcomers who have just entered this industry. If you're interested in learning how to trade the Gartley pattern in forex markets, you should be aware that it requires time and practice to master, but that it will be worthwhile once you do.

In this article, you'll get a view of how the Gartley pattern may improve your trading and help you succeed in the forex market.

The Gartley Pattern: Explained

Harold McKinley Gartley, a successful trader and businessman in the 1920s, who was among the foremost traders to utilize statistical research to evaluate stock market values, is credited with coming up with the term "the Gartley pattern." The first knowledge and shared information on how to recognize and apply it can be found in Gartley's script, "Stock Market Profits," which is also known as the "222 patterns."

Because it attempts to pinpoint specific entry price points upon which a prospective trend will retrace or break out, the Gartley pattern is a harmonic chart pattern. Each number in the Fibonacci sequence is created by adding the two preceding integers. The pattern is most frequently employed in the forex market and is used by traders to showcase the degree of resistance and support in various financial markets.

In that regard, resistance and support relate to distinct levels that seem to limit the price fluctuations of an asset. Resistance is the point at which the price might start increasing, while support is the point at which the price of an asset may stop dropping.

On a price chart, the pattern itself will seem like either an "M" or a "W" shape; if the entire price motion is in bullish mode, it will look like an "M," and if it is bearish, it will look like a "W." The butterfly, the bat, and the crab are among the other harmonic patterns; this one is the most frequent of them all.

The Best Way To Spot The Forming Of The Pattern

The discussed pattern depends on several marked points inside a more significant price movement. The Gartley pattern in the example below represents an overall positive trend (since the motion from X—A is trending upwardly) that is at that time undergoing a bearish decline. The following steps can be used to spot the pattern in order to use it to your own advantage while trading:

First things first, there aren’t any clear and obvious signs for recognizing the X—A portion of the pattern itself, which is precisely where the Fibonacci chain of numbers comes into play. A—B is when Fibonacci becomes significant to the forming of the Gartley pattern. This activity should convey a decline of 38.2% to 88.6% of the distance from points A—B or around 62% of the amount of the action from X—A or/and B—C. When the C—D movement is finished, you should assess the entire A—D move at precisely a 78.6% decline of the value shift from X—A. The Gartley pattern is worthless if the B—C move retraces above point A. C—D should be a 127.2% to 161.8% extension of the B—C leg. 

Trading The Gartley Pattern

If you believe the market will eventually fall, you should put a sell order at point D. On the other hand; if you believe that the forex market will eventually increase while utilizing the famous Gartley pattern, you should put an order for purchasing at pinpoint D. Naturally, all these hinges on whether or not the pattern forms like the letter W for bearish markets, or as the letter M for bullish ones. 

Financial derivatives like spread betting positions and contracts for difference, which you may access by creating a trading account, can also be used to trade the Gartley pattern. With the use of these products, you may guess the value of each financial asset without directly purchasing it, allowing you to go either short or long.

Your return depends on how accurate your prediction is since you are predicting whether the price of an asset will increase or decrease. Leverage is another option for opening the above-mentioned contracts for difference or spread betting positions. As a result, you may access the whole market for a pinch of the price. However, keep in mind that as long as leverage can increase profits, the same leverage you have can increase your prospective losses.

Final Thoughts

To sum up, the better win rate and reward-to-risk ratios that the Gartley pattern technique generates make it advantageous. All you need is a keen eye to see the warning signs; because this approach relies on mathematical precision, it makes it simpler to do so. Understanding this pattern will help you in the trading business since traders from all around the world communicate through chart patterns and price movements.