Once upon a time, there was a brilliant trader named Harold McKinley Gartley. In the mid-1930s, he ran a popular stock market advisory business. This was one of the first services to use scientific and statistical approaches to study stock market behavior.
According to Gartley, he was ultimately able to answer two of the most difficult trading problems: what and when to buy.
Traders quickly discovered that these patterns might be applied to other markets. Since then, the Gartleys have inspired numerous books, trading software, and other patterns (described further below).
Gartley a.k.a. “222” Pattern
The Gartley “222” pattern gets its name from the page number on which it appears in H.M. Gartley’s book Profits in the Stock Market.
Gartleys are patterns that incorporate the basic ABCD pattern discussed previously, but are preceded by a strong high or low.
These patterns typically appear as a ‘M’ (or a ‘W’ for bearish patterns) when the general trend is correcting.
These patterns are intended to assist traders in locating appropriate entry points to capitalize on the general trend.z
A Gartley formation occurs when price activity has been in an uptrend (or decline) but has begun to show indicators of a correction.
The reversal points are a Fibonacci retracement and a Fibonacci extension level, which makes the Gartley such a wonderful setup when it forms. This increases the likelihood that the pair will reverse.
This pattern can be difficult to find, and if you do, all those Fibonacci tools can be perplexing. To avoid all of the complexity, take things one step at a time.
In any case, the pattern contains an ABCD pattern that is either bullish or bearish, but it is preceded by a point (X) that is beyond point D.
The “ideal” Gartley pattern has the following properties:
1. The.618 retracement of move XA should be moved AB.
2. The.382 or.886 retracements of move AB should be used for move BC.
3. If the retracement of move BC is.382 of move AB, then the retracement of move CD should be 1.272 of move BC. As a result, if move BC is.886 of move AB, CD should be 1.618 of move BC.
4. The.786 retracement of move XA should be used for move CD.
Gartley Mutants: The Animals
The Gartley design gained in popularity over time, and people finally came up with their own versions.
For some strange reason, the discoverers of these variations named them after animals. Without further ado, the animal pack arrives.
The Crab
Scott Carney, a believer in harmonic price patterns, identified the “Crab” in 2000.
According to him, this is the most accurate harmonic pattern of all because of how extreme the Potential Reversal Zone (also known as the “price better reverse or I’m going to lose my shirt” point) from move XA is.
Because you may set a very tight stop loss, this pattern has a high reward-to-risk ratio. The “ideal” crab design must include the following features:
1. The.382 or.618 retracement of move XA should be used for move AB.
2. Move BC is a.382 or.886 retracement of move AB.
3. If move BC’s retracement is.382 of move AB, then CD should be 2.24 of move BC. As a result, if move BC is.886 of move AB, then CD should be 3.618 of move BC.
4. CD should be 1.618 times the length of move XA.
The Bat
Scott Carney created another Harmonic Price Pattern called the “Bat” in 2001.
The Bat is designated as the Potential Reversal Zone by the.886 retracement of move XA. The Bat pattern possesses the following characteristics:
1. The.382 or.500 retracement of move XA should be used for move AB.
2. Move BC is a.382 or.886 retracement of move AB.
3. If the retracement of move BC is.382 of move AB, then the extension of move BC should be 1.618. As a result, if move BC is.886 of move AB, then CD should be 2.618 of move BC.
4. CD is the.886 retracement of move XA.
The Butterfly
The Butterfly pattern is another option.
If you spot this setup, you’ll be swinging for some knockout-sized pips like Muhammad Ali!
The perfect Butterfly pattern, developed by Bryce Gilmore, is defined by the.786 retracement of move AB with regard to move XA.
The Butterfly has the following characteristics:
1. The.786 retracement of move XA should be move AB.
2. Move BC might be a.382 or.886 retracement of move AB.
3. If move BC’s retracement is.382 of move AB, then CD should be 1.618 extension of move BC. As a result, if move BC is.886 of move AB, CD should be 2.618 of move BC.
4. CD should be 1.27 or 1.618 times the length of move XA.
Next Lesson: 3 Steps to Trading Harmonic Price Patterns