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.
- Wave AB should be 61.8% of XA and should equal CD in time length.
- Wave BC should be 61.8 to 78.6% of AB.
- 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).