My Fibonacci Reversal Pattern Shows Up in GILD
One of the greatest books I’ve read concerning technical analysis is
“Profits in the Stock Market” by Harold Gartley. Gartley published this
book in the 1930s. I
was fortunate to find the book in a small investment library in southern
California in 1970. The Gartley pattern has become quite popular in recent years
and is featured in several charting packages for trading.
I owe a deep debt of gratitude to Harold Gartley because on page 222 he
described the pattern that now bears his name. In fact, the pattern is now
popularly known as the Gartley 222 pattern. Several books have been written
describing this pattern and there are many websites devoted to showing how the
pattern works in real time.
In this article, I will walk you through the Gartley 222 pattern. Note that
this article is best understood by traders who are familiar with Fibonacci.
There are many resources on the internet that can provide you with this basic
knowledge.
What is the Gartley Patttern?
The Gartley pattern is an AB=CD pattern that is contained inside a major high and low. This pattern is
often referred to as a thunderbolt pattern.
Gartley said that this pattern can be used to pick a
potential top or bottom with relative low risk.
Bullish Gartley 222 Pattern Rules
The Gartley 222 Pattern can be applied to both up and down moves. Here are the
rules for up moves.
- Assign a low as point X and then find the corresponding
high as point A and proceed to find the formation of the AB=CD
pattern illustrated above. - It is important that the D point does not lower than X point and the C
point is not higher than the A point. - Should any of these events occur, another pattern comes into play. This is
important because your stop point must be placed slightly above the X point. - However, if there is a gap or an extremely wide ranging bar (2 to 3 times normal) it is best to wait several bars before entering the trade. This is
common sense because wide ranging bars and gaps are equivalent to a fast moving
freight train. - The first profit objective would be the .618 of the CD swing and the
second profit objective would be the 1.618 of the CD swing. As you can see from
the second profit objective a new AB=CD formation has occurred.
All traders know that the market can do only 3 things…go up, down or
sideways and it usually does it in AB=CD fashion. The most important part of the
Gartley pattern is that the point X to A and AB=CD leg align with the 4 major ratios of the Fibonacci summation series .618, .786, 1.27 and 1.618.
In my 45 years of trading I have never found a pattern that is more reliable and
found as often on any timeframe as the Gartley 222 pattern.
Gartley 222 patterns work on any timeframe. As you can see from the above chart
on the USD/CAD hourly Forex chart the Gartley 222 pattern completes at point D.
Your stop level would be the previous low. The first price objective of this
move would be near the C level which would be a .618 retracement of the A to D
leg. The second price level would come in at the 1.618 level which would also
complete a larger ABCD leg. This occurs because the D leg can also be a C leg
of a larger move.
Gartley patterns also work across every asset class. The chart of Gilead Sciences
(
GILD |
Quote |
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PowerRating), an actively
traded NASDAQ stock, illustrates a very symmetrical Gartley pattern. As you can
see, at point D an AB=CD pattern has completed at a higher bottom which is at the
.786 retracement from that bottom. Your first price objective would be the .618 retracement of the CD leg approximately $45.50 per share. The second price objective would be at point D at $49.00 per share.
As you
can see the risk/reward ratio on Gartley 222 patterns favors the trader and the
probabilities of success are far greater than a coin toss of 50/50.
For more information about how you can apply Larry Pesavento’s strategies to
your own trading, go to www.tradingtuor.com.