Forex Trading Strategy: The Key to Successful Harmonic Pattern (2)
In the first section, we have discussed the ABCD Pattern and Three-Drive Pattern. Both patterns are a type of harmonic pattern that you can use as one of the techniques for analyzing forex trading.
This time we will discuss another variant of the harmonic pattern, namely the Gartley pattern. This pattern was introduced by a stockbroker named Harold McKinley Gartley in the mid-1930s. He claims that with this method he can answer two big questions in the world of trading: when is the time to buy and when to sell.
Shortly after Gartley published his findings, people began trying to apply the method to instruments other than stocks. Since then many books and discussions discuss the Gartley method.
Gartley pattern (also called 222 patterns) actually has the same base as ABCD pattern. The difference is that this pattern is preceded by the appearance of significant prices of high (high) or low (lowest).
These patterns will usually form when there is a correction from a trend. Usually, it also looks like the letter M or W. This pattern can help to find a good entry point.
The Gartley pattern is formed when the price is in an uptrend or downtrend but has begun to show signs of correction.
What’s interesting is that when there is a reversal, the reversal points are Fibonacci levels. This makes this pattern a strong indicator of a potential reversal.
Unfortunately, this pattern is quite difficult to recognize and quite risky to cause confusion because of the many Fibonacci drawn. The key is: pull Fibonacci one at a time, not together.
The Gartley pattern actually contains an ABCD pattern which was discussed in the first part, only beginning with point X.
As a guide for you, here are some points to keep in mind regarding this Gartley pattern:
- AB movement must be a correction of 61.8% of the XA movement.
- The BC movement must be a correction of 38.2% (or 88.6%) of AB movement.
- If correction BC is a correction of 38.2% of AB, then the CD must be an extension of 127.2% of the BC movement. But if BC is a correction of 88.6% of AB, then the CD is an extension of 161.8% of the BC movement.
- The movement of the CD must be a 78.6% retracement of the XA movement.
As usual, we recommend first trying to recognize these patterns before applying them in a real account. You can get a demo account for free training facilities.
OK, that’s the second part about the harmonic pattern this time. In the next section, we will discuss other developments of the Gartley pattern.