In this series of articles, Ross L. Beck, FCSI author of the bestselling book The Gartley Trading Method: New Techniques to Profit From the Market’s Most Powerful Formation will discuss the best way to find Gartley Patterns.

How to Find Gartley Patterns – Part I

Before we start looking for something, we have to define what it is that we are looking for. In The Gartley Trading Method: New Techniques to Profit From the Market’s Most Powerful Formation, I discuss the historical development of the Gartley Pattern. The Gartley Pattern is named after H.M. Gartley, an early 20th century Wall Street technician who wrote a book in 1935 entitled Profits in the Stock Market. Therein he describes what he calls one of the best trading opportunities. Further details on the evolution of the Gartley Pattern can be found in the article “Gartley Trading Pattern” published in the September 1, 2009 issue of The Educated Analyst. In that article, I discussed the power of using the 78.6% level (√.618), and in this article I will continue to use that ratio. The XABCD labels are those generally used today to describe the Gartley Pattern, so we will use those labels as seen below in a chart of WPC. The following example is not an idealized example as this trade was identified in advance in The Geometric Trader – Global Equities Report October 3, 2011.

Traditional Gartley Pattern Labels

The easiest aspect of the pattern to identify is the symmetry between the AB leg and the CD leg. We ideally want to see the price range of AB to be equal to CD. To check to see if this is the case, simply use the price extension tool to see if there is a relationship between AB and CD. In Market Analyst select tools>levels>price extension and then click the high at A, the low at B and then the high at C. Make sure that only the 100% level is selected in the properties of the price extension tool if there is more than one projection displayed. The chart below is an example of what the price extension projection should look like:

Price Extension Added

Now we need to add the 78.6% price retracement. To access the price retracement tool in Market Analyst, select tools>levels>price retracement. Next, click the low at X and the high at A and with the price extension tool applied, the chart should now look like the one below:

Price Retracement Added

If other Fibonacci levels are displayed on your chart, access the properties of the price retracement tool to turn off all levels except the 78.6% level.

Now, with both the price extension and retracement projections applied to the chart, we can now make a decision as to whether or not this is a bullish Gartley Pattern. Due to the fact that the 100% price projection lands closer to the 78.6% level versus the other retracement levels (including 100%), we can conclude that this will be a valid bullish Gartley Pattern if one final condition is met. The market still needs to trade at the 78.6% level before the setup is complete. Once this criterion has been met, only then may we consider entering orders. As seen below, WPC did trade at this level:

Bullish Gartley Pattern Setup Complete

Now that the setup is complete, what do we do? You will have to wait for the next installment in this series of articles entitled How to Find Gartley Patterns Part II!

To learn more about Ross’ book, The Gartley Trading Method: New Techniques to Profit From the Market’s Most Powerful Formation, click here.

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