As of 06/01/2020
Indus: 25,475 +91.91 +0.4%
Trans: 8,966 3.88 0.0%
Utils: 815 +8.41 +1.0%
Nasdaq: 9,552 +62.18 +0.7%
S&P 500: 3,056 +11.42 +0.4%

YTD
10.7%
17.8%
7.3%
+6.5%
5.4%

27,000 or 24,000 by 06/15/2020
9,800 or 8,200 by 06/15/2020
850 or 750 by 06/15/2020
9,800 or 9,000 by 06/15/2020
3,200 or 2,850 by 06/15/2020

As of 06/01/2020
Indus: 25,475 +91.91 +0.4%
Trans: 8,966 3.88 0.0%
Utils: 815 +8.41 +1.0%
Nasdaq: 9,552 +62.18 +0.7%
S&P 500: 3,056 +11.42 +0.4%

YTD
10.7%
17.8%
7.3%
+6.5%
5.4%
 
27,000 or 24,000 by 06/15/2020
9,800 or 8,200 by 06/15/2020
850 or 750 by 06/15/2020
9,800 or 9,000 by 06/15/2020
3,200 or 2,850 by 06/15/2020
 
Statistics updated on 4/8/2020
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 breakout.
Let me also say that I have not read Gartley's book, so details of this pattern are based on Internet sources.
Bearish Gartley

Bearish Gartley: Important ResultsOverall performance rank for up/down breakouts (1 is best): 20 out of 48/18 out of 46
Break even failure rate for up/down breakouts: 14%; 23%
Average rise/decline: 43%; 15%
Throwback/pullback rate: 66%; 60%
Percentage meeting price target for down breakouts: 31% (using the full height target, not as a drop below D)
The above numbers are based on move than 2,400 perfect trades. Upward breakouts measure the rise above the top of the pattern. Downward breakouts measure the drop below the bottom of the pattern, not below D. 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 rare. Here are the traditional identification guidelines for the pattern.
Characteristic  Discussion 
The Bearish Gartley Retraces

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, traditional  Compute the height of there Gartley from peak X to valley A. Add the height to X for upward breakouts or subtract it from A for downward breakouts. Price will reach the target 57% of the time for upward breakouts and 31% for downward breakouts.  
Swing trading measure rule  For shortterm swing trades, the target price zone is between peak B and valley A. The associated figure shows how often price reaches those targets, based on numbers from June 2019. 
Statistics updated on April 2020 says that 87% of the Gartley's turn lower at D and drop an average of 14% (measure from the high price at D). For those turning at D, 99% made it down to B, 51% reached C, and 34% made it to A.
For an explanation of the swing trading measure rule, refer to the figure on the right. This is based on statistics from June 2019. These numbers are shown in the chart above.
I tested the pattern and measured the drop from the high at D to either a 20% trend change (price rises 20% from a valley) or a rise above X.
The numbers in the figure show what I found. Thirty percent of bearish Gartley's turn lower at D and that means the majority (70%) continue rising above X. A close above X means an upward breakout.
I found that 91% of the patterns that moved lower after D see price drop to B, 39% see price continuing lower to C and 27% drop to A or go below it.
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. See "Completion" in the trading tactics table of the measured move up for more information.
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
See Also

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