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Friday, May 16, 2008

Gartley Trading Pattern

Gartley trading pattern or Gartley butterfly pattern is considered one of the most reliable trading patterns to identify a trend and to find the entry/exit point. It was outlined in 1935 by H.M.Gartley in his book ‘Profits in Stock Market’. Gartley is a complex pattern, which requires good trading knowledge and experience to be cited and utilized. It can locate both short-term and long term trading trends; and thus beneficial for all types of traders.

A bullish Gartley pattern is M shaped and a bearish pattern is W shaped. The first wave in the pattern (XA) joints the highest and lowest points of the pattern. The pattern is based on Fibonacci numbers, and should fulfill the following regulations.
  1. Wave AB should be 61.8% of XA and should equal CD in time length.
  2. Wave BC should be 61.8 to 78.6% of AB.
  3. Wave CD should be 127 to 161.8% of BC.
In reality, an ideal Gartley pattern is very rare. Many traders allow a Tolerance percentage (T%) to expand the range of Fibonacci numbers. Eg: providing a 5% value to T% can give a range 56.8 to 66.8 instead of 61.8.

D is the point to enter or exit a trade. X is often taken as the stop loss value. The ideal profit target for a bullish Gartley is D + (0.618 x CD) and the ideal profit target for a bearish pattern is D - (0.618 x CD).

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