As of 04/23/2024
Indus: 38,504 +263.71 +0.7%
Trans: 15,436 +212.01 +1.4%
Utils: 886 +2.63 +0.3%
Nasdaq: 15,697 +245.33 +1.6%
S&P 500: 5,071 +59.95 +1.2%
|
YTD
+2.2%
-2.9%
+0.5%
+4.6%
+6.3%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/23/2024
Indus: 38,504 +263.71 +0.7%
Trans: 15,436 +212.01 +1.4%
Utils: 886 +2.63 +0.3%
Nasdaq: 15,697 +245.33 +1.6%
S&P 500: 5,071 +59.95 +1.2%
|
YTD
+2.2%
-2.9%
+0.5%
+4.6%
+6.3%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
Statistics updated on 8/28/2020
The Gartley pattern is named after its founder H.M. Gartley. It's sometimes known as the Gartley 222 because it appeared on page 222 of his book, Profits in the Stock Market, published in 1935. I programmed my computer to automatically find this pattern and tested how well it works. I split the Gartley pattern into two articles. This article discusses the bearish Gartley, the variation with a downward move after point D.
Let me also say that I have not read Gartley's book, so details of this pattern are based on Internet sources.
Bearish Gartley
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The above numbers are based on move than 2,400 perfect trades. See the glossary for definitions.
The Gartley pattern is complex because it deals with Fibonacci ratios. Trying to find it without a computer or calculator is a difficult exercise.
The chart pattern can be classified as a variation of a measured move up. The A and C valleys look like an ugly double bottom, too.
Having so many rules makes the pattern somewhat rare. Here are the traditional identification guidelines for the pattern.
| Characteristic | Discussion | 
The Bearish Gartley Retraces
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| XA | Price drops from X (see figure on the right, not drawn to scale) to valley at A. This is typically a large downward move to accommodate the retraces that follow. | |
| AB | Price retraces from the valley A to peak B about 61.8% of the XA move. | |
| BC | After peaking at B, price drops to C. The BC move retraces 61.8% or 78.6% of the AB rise. For testing, I chose to interpret this as a range of acceptable values. | |
| CD | The final leg of the pattern sees price rise from valley C to peak D. The CD move is 127% or 161.8% of the BC move. For testing, I chose to interpret this as a range of acceptable values. | |
| Invalid | If price rises above X on the way to finding D, then the pattern should be ignored. |
| Trading Tactic | Explanation | 
The Measure Rule
|
| Short | Once price turns at D, short the stock. That's the problem with trading this pattern. How do you know the stock has completed the turn at D? For an estimate of the turning price, use the BC move. CD should be 127% or 162% longer than BC, but be flexible since it rarely holds true. | |
| Stop | I chose a close above X as the stop location but once turn D is in place, that could serve as a closer stop. | |
| Measure rule | After price turns down at D, it drops to A 34% of the time, to B 99% of the time, and to C 51% of the time. You can use those as targets. The associated figure shows the hit rates. |
Notice that most of the patterns stop in what's called the corrective phase of the measured move up (BC). This is a congestion region that often stops price.
Let's take a look at a trading example.
I show the Gartley on the daily chart of Global Industries. X is at 8.04, A is at 6.11, B is at 7.31, C is 6.40 and D is 7.69.
The AB retrace of XA is 62%. The BC/AB drop is 76%, near the top of the range between 61.8% and 78.6%. The CD/BC move is 142%, about midway in the 127% to 161.8% range.
After D, the stock drops until reaching the "ultimate low" (the lowest low before price rises 20%), shown at E.
The pattern showed a drop of 33% (7.69 to 5.19, D to E). From the bottom at A, the stock dropped 14% to E (a drop below the bottom of the pattern is the traditional measure for downward breakouts).
Would you be able to spot this as a Gartley if the labels were not attached?
-- Thomas Bulkowski
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