As of 08/19/2019
  Indus: 26,136 +249.78 +1.0%  
  Trans: 10,081 +114.06 +1.1%  
  Utils: 836 +5.18 +0.6%  
  Nasdaq: 8,003 +106.82 +1.4%  
  S&P 500: 2,924 +34.97 +1.2%  
YTD
 +12.0%  
 +9.9%  
 +17.3%  
 +20.6%  
 +16.6%  
  Targets    Overview: 08/15/2019  
  Up arrow27,200 or 24,900 by 09/01/2019
  Up arrow10,700 or 9,550 by 09/01/2019
  Up arrow850 or 790 by 09/01/2019
  Up arrow8,200 or 7,400 by 09/01/2019
  Up arrow3,000 or 2,750 by 09/01/2019
As of 08/19/2019
  Indus: 26,136 +249.78 +1.0%  
  Trans: 10,081 +114.06 +1.1%  
  Utils: 836 +5.18 +0.6%  
  Nasdaq: 8,003 +106.82 +1.4%  
  S&P 500: 2,924 +34.97 +1.2%  
YTD
 +12.0%  
 +9.9%  
 +17.3%  
 +20.6%  
 +16.6%  
  Targets    Overview: 08/15/2019  
  Up arrow27,200 or 24,900 by 09/01/2019
  Up arrow10,700 or 9,550 by 09/01/2019
  Up arrow850 or 790 by 09/01/2019
  Up arrow8,200 or 7,400 by 09/01/2019
  Up arrow3,000 or 2,750 by 09/01/2019

Bulkowski's Bearish Gartley

 

Statistics updated on 6/6/2019. Rank updated on 7/26/19.

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.

The bearish Gartley
Bearish Gartley

 

Bearish Gartley: Important Results

Overall performance rank for up/down breakouts (1 is best): 7 out of 56/19 out of 53
Break even failure rate for up/down breakouts: 12%; 21%
Average rise/decline: 46%; 16%
Throwback/pullback rate: 67%; 60%
Percentage meeting price target for down breakouts: 91% (91% reach point B)

The above numbers are based on 705/301 perfect trades with up/down breakouts. 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.

Bearish Gartley: Identification Guidelines

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.

CharacteristicDiscussion Gartley chart pattern retraces
The Bearish Gartley Retraces
XAPrice 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.
ABPrice retraces from the valley A to peak B about 61.8% of the XA move.
BCAfter 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.
CDThe 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.
InvalidIf price rises above X on the way to finding D, then the pattern should be ignored.

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Bearish Gartley: Trading Tips

Trading TacticExplanation Gartley chart pattern measure rule
The Measure Rule
ShortOnce 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.
StopI chose a close above X as the stop location but once turn D is in place, that could serve as a closer stop.
Measure RuleThe target price zone is between peak B and valley A. The associated figure shows how often price reaches those targets.

For an explanation of the measure rule, refer to the figure on the right.

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 with downward breakouts see price drop to B, 39% see price continuing lower to C and 27% drop to A or go below it.

Thirty-nine percent dropped to C. Just over a quarter, 27%, reached or exceeded the bottom of the Gartley, at A.

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.

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Bearish Gartley: Trading Example

Gartley chart pattern trading example

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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See Also

 

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My novels:      New                  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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