The Gartley pattern is one of the most popular chart patterns used in technical analysis. Named after the trader H.M. Gartley who identified it in the early 20th century, this pattern can help traders spot trend reversals and potential entry and exit points in the markets.
For BetPro Exchange traders, mastering the Gartley pattern can give an edge with predicting price movements and planning profitable trades. This guide covers everything needed to utilize the Gartley pattern when trading on BetPro Exchange.
What is the Gartley Pattern?
The Gartley pattern is a complex price pattern that manifests in five key swing points that make a distinctive “M” shape. It indicates a market reversal at point D, signifying a potential opportunity to enter a new trend. According to Investopedia, the five swing points can be labelled:
- A – The start of the pattern as prices move lower
- B – The first swing low
- C – A retracement higher towards previous resistance levels
- D – The next swing low but higher than point B
- E – The final move higher representing the pattern confirmation and chance to enter
Between these points, the Fibonacci tool is used to identify retracements and extensions that characterize a valid Gartley pattern. The whole formation represents a fairly lengthy consolidation signaling an impending trend change ahead.
The Gartley pattern in action on BetPro Exchange (Image credit: TradeVet)
Why Trade the Gartley Pattern?
The Gartley pattern helps traders identify turning points through a visual map of the oscillating shift from bullish to bearish sentiment in a market. Traders can use it to spot high-probability trade setups just as a new trend emerges out of consolidation.
Reasons why trading the Gartley can be advantageous include:
- Anticipates trend reversals – The distinctive M shape signals potential exhaustion of the current trend and an impending reversal
- Defines entry, stop loss and take profit levels – Swing points provide logical areas to set trade parameters
- Works on all markets and instruments – Can be applied to forex, crypto, stocks, commodities, and more
- Early identification of shifts in sentiment – Extended consolidation tips off changes earlier than other indicators
- Powerful when combined with other analysis – Adds confluence and confidence when paired with techniques like volume analysis
With practice, the Gartley pattern can be a versatile tool for calling impending trend changes across any liquid trading market.
How to Identify the Gartley Pattern
Gartleys can be tricky to spot reliably. Here are key guidelines for properly identifying the pattern:
- Must have distinct swing points – Clear higher highs and lower lows between reversals signaling consolidation
- Must have M shape– The distinctive peaks and valleys that form the overall pattern
- Must meet Fibonacci retracement ratios – Using the Fib tool, AB=61.8%, BC=38.2%, CD=127.2%
- CD swing exceeds AB move – The extended CD leg hints at emerging momentum in a new direction
In addition, look for other markers suggesting a exhausted trend such as decreasing volume and waning volatility leading into the final moves.
Having clear criteria for validating Gartleys will help avoid false signals and ensure higher probability setups.
How to Trade the Gartley Pattern
Once validated, the Gartley pattern offers clear trade planning levels based on its swing points and Fibonacci extensions.
The main trading strategy rules include:
- Enter new long position on break of point D – The break signals a potential trend reversal pointing upwards
- Place stop loss below D – Stops out the trade if the turn fails to materialize
- Take partial profits at the 1.27 Fib extension – This aligns to the AB=CD measure for an optimal reward-risk ratio
- Move remaining stop to break even to lock gains – Eliminates risk for the second partial target
- Take final profits at 1.618 extension – Closes the entire trade at the maximum Fib projection
Here is an example trade plan when going long on a Gartley buy setup:
This showcases the full potential of trading Gartleys – fantastic risk vs reward ratios with pre-defined areas for trade entry, stop loss and multiple take profit targets.
Optimizing Gartley Trades
When trading Gartleys, it’s essential to optimize additional aspects to improve profitability:
- Mind overall market conditions – Ideal when trading in direction of higher timeframe trend
- Combine with supporting indicators – Adds confidence when indicators align, like RSI divergence
- Manage risk appropriately – Size positions according to stop distance and risk tolerance
- Trail stops to maximize gains – Manually trail stops just below swing highs/lows to lock in more profits during big moves
Fine tuning trade plans according to current markets and pairing Gartleys with confluent signals can dramatically boost performance.
Common Gartley Trading Mistakes
While potent when traded well, poor execution can quickly eliminate profits when dealing with Gartleys. Be aware of these common mistakes:
- Overcomplicating analysis – Clean, obvious patterns work best
- Forcing incorrect swing points – Must meet natural pattern sequence, not idealized measures
- Trading against overall market trend – Best traded with the higher timeframe trend
- Having wide, undefined stop losses – Stops should be placed just below recent swing lows/highs
- Neglecting sound risk management – Ensure appropriate position sizing for stop distance
Avoiding these pitfalls allows Gartley traders to capitalize fully on this powerful chart pattern.
Bottom Line
When identified and traded properly, the Gartley pattern can produce outsized rewards thanks to the extended consolidation phase defining clear areas for planning low risk, high reward trades. Combining Gartleys with existing effective strategies can take results to another level.
Now you have all the techniques needed to master the art of trading Gartleys. So start putting these methods to work on BetPro Exchange charts and see those profits grow!
Frequently Asked Questions
What are the ideal market conditions to trade Gartleys?
Gartleys perform best when traded in the direction of the higher timeframe trend. So during an uptrend, focus on buying setups. In downtrends, focus solely on shorts. Avoid countertrend setups.
What timeframe works best for Gartleys?
Gartleys can form on any timeframe. Generally, the longer timeframes like daily and weekly provide the cleanest patterns and strongest trades. Use shorter timeframes only for confirmation.
What indicators complement trading the Gartley pattern?
Volume analysis, momentum oscillators like RSI/stochastics, and moving averages can boost conviction when aligned with Gartley patterns. Ensure confluence across additional indicators for best results.
Is the Gartley pattern applicable to crypto trading?
Absolutely. The same principles outlined here apply directly to crypto assets. With crypto’s inherent volatility, Gartleys can spot trend changes earlier leading to even bigger moves to capitalize on.
Can Gartleys be automated or traded by algorithms?
Automated trading systems can certainly be programmed to scan and trade Gartleys per user-defined rules and settings. However, discretionary trading allows dynamically reacting to real-time chart formations.