Gartley model is the big brother of the Harmonic pattern family, a great source of ideas for analysts to create Harmonic animal variations such as Butterfly Pattern (butterfly), Crab Pattern (crab), Bat Pattern (bat) or Shark Pattern (the shark), . .brings great trading efficiency in the financial market. So to understand well what is the Gartley model? How reputable is the trading system with the model on the forex broker, let's find out.
Gartley model overview
The Gartley pattern, as well as the Harmonic pattern, is the oldest and most popular. This pattern looks like an M or a W on the chart, depending on whether it is a bullish or bearish Gartley pattern.
The Gartley pattern has 5 points on the chart. These points are marked in the order of the letters X, A, B, C and D. And how the Gartley pattern forms is as follows:
The Gartley pattern will start at point X and make successive oscillations of XA, AB, BC and CD until it completes point D.
Gartley's model rule
This Gartley pattern is like the other “members” of the “family” of Harmonic price patterns, each segment in the pattern must correspond to specific Fibonacci levels. Now let's dive into what each component of the Gartley model framework is.
XA: This range can be any price action on the chart. There are no specific requirements or regulations about moving the XA segment on the Gartley model.
AB: The amplitude should be 61.8% of the XA amplitude.
BC: The BC band move is in the opposite direction to AB and ends at the 0.382 or 0.886 Fibonacci Retracement of the AB band.
CD: Motion of amplitude CD is in the opposite direction to BC. Later:
- If amplitude BC is 38.2% AB, then amplitude CD is 127.2% BC.
- If amplitude BC is 88.6% AB, then amplitude CD is 161.8% BC.
AD: The final rule for the Gartley model is that when the movement of the CD is complete, you need to measure the amplitude of the AD segment. A valid Gartley pattern on the chart would have an AD amplitude of 78.6% of the XA amplitude. You can refer to the illustration below to help you visualize what the rules of the Gartley pattern are so that you can later master how to confirm the pattern formation on the chart.
See also: The simplest way to use Fibonacci retracement in Forex trading
Types of Gartley models
In this pattern there are also two types of patterns often seen on financial market charts. Let's take a closer look in the next part of the article.
High Gartley Pattern
The Bullish Gartley pattern starts with a bullish XA range, followed by a bearish AB beat, a bullish BC range, and finally a descending CD range. Along with this movement combined with the corresponding proportions of the Fibonacci levels as per the above rule, the market expects an uptrend from point D. Bullish Gartley pattern target is an extension of 161.8% from the AD segment, that is, DE = 1,618 AD
Bearish Gartley Pattern
The Bearish Gartley pattern is similar to the Bullish Gartley pattern, but only inverted. The Bearish Gartley pattern will start with a bearish XA range, followed by a bullish AB range, a bearish BC range, and finally a bullish CD range again.
Following this movement together with the combination with the indices corresponding to the Fibonacci levels according to the above rule, the market expects a bearish period from point D. The objective of the Bearish Gartley pattern is an extension. add 161.8% from the AD segment, that is, DE = 1.618 AD. Below is an illustration of a Bearish Gartley pattern.
Gartley pattern trading system
Entry point – Entry point
To execute a Gartley trade, you first need to determine the validity of the pattern in the real market according to the rules outlined above. And for convenient tracking, you should mark the important points X, A, B, C, D on the chart. Then check the markers with the Fibonacci tool to ensure the pattern is correct.
- BUY at point D if the pattern is Bullish Gartley.
- SELL at point D if the pattern is a Bearish Gartley.
Observation. Instead of having to place a BUY/SELL order directly at point D, you will have 2 ways to trade:
One is a combination of other technical tools that support entry points in D. The other is that you should enter smaller timeframes so you can find the ideal entry point your way.
See also: Instructions on how to determine the most effective Forex entry point
Stop Loss – Stop Loss
If there is a trade in the Bullish Gartley pattern, you should place the stop loss below the lower D. If it is the Bearish Gartley pattern, the stop loss order will be above the upper D.
See also: What is Stop Loss? The most effective guide to placing stop-loss orders
Profit - Profit
The target price on completion of the Gartley pattern is at the extended E point of 161.8% from AD. That is, DE = 1.618 AD. However, the purpose of profit according to the model is the same, but depending on market conditions, you will have different ways to make a reasonable profit.
Observation. It is recommended to profit more effectively with the Fibonacci Extension tool in combination with some other technical tools.
The handling of exit orders should depend on the market situation at that time, and you will have different processing guidelines. If you are seeing the market moving in the right direction with strong strength, you can move your stop loss to a tie or trailing stop for better profits until there is a reversal signal. And if you see that the market is still moving in the right direction, but above the bigger picture, but the price is facing a strong resistance area (resistance is usually support and resistance), you can close your order early, too. it's a safe way. on the trading market.
Realistic Gartley pattern trading example
After we learn the theory, we will show you an example so that you can understand and apply the correct model.
Example 1: Bullish Gartley pattern is located on the weekly chart of the pair NZD/USD.
When looking at the NZD/USD currency pair on the weekly chart, you will see correction AB 61.8% against XA, segment correction BC 88.6% against AB, CD 161.8% extended against BC and same time AD is XA adjusted regulator 78.6%. Therefore, the condition for forming a Bullish Gartley pattern was confirmed. You must execute the BUY order at point D, SL just below point D, TP at point E with DE being 161.8% in length from the AD segment.
Example 2: The bearish Gartley pattern is on the H4 chart of the pair AUD/CHF.
Below is an illustration of the H4 chart of the AUD/CHF pair.
By following the AUD/CHF currency pair in the H4 chart, you will see that segment AB is 61.8% higher than XA, BC is 88.6% lower than AB, segment CD is 161.8% higher than BC and AD is set 78.6% of XA. These market conditions confirmed the formation of a Bearish Gartley pattern. You must execute a SELL order at point D, SL just above point D, TP at point E with DE being 161.8% in length from the AD segment.
View more: Article What is a 2-vertex pattern? How to trade with double tops