Harold McKinley Gartley was once known for a stock advice service that he ran in his day and age. He was a very popular person to turn to for advice on these matters because he clearly knew what he was doing, and he was willing to share his experiences with anyone who would listen to what he had to say.
As a result of this, it became clear early on that Harold Gartley might be on to something when he published a book titled Profits in the Stock Market. This book would go on to be instrumental in the way that many people would learn about how to trade the market.
The 222 Pattern
The 222nd page of Gartley’s book would become something that traders would come to rely on as they searched for patterns and ways to trade the market like they never had before.
The patterns that one can find in the 222 patterns are simple recent highs and recent lows. However, they are useful for traders who are looking for great entry and exit points for their trades.
A Gartley has formed when the recent price action starts to show signs of a correction. The Gartley formation will form points of entry and exit that align with the Fibonacci sequence. If the pair hits any of the levels on the Fibonacci sequence, it means that there may be some strong signs of a reversal in the pair. Thus, a Gartley may be about to form.
To the untrained eye, this pattern can be difficult to identify, but once you train your eye to find it, identification becomes a bit easier. The key is to recognize the hallmarks of the Gartley pattern.
Essentially, the Gartley pattern is a bearish or bullish ABCD pattern — except that there is a point X beyond point D.
See the above illustrations. The ideal Gartley pattern has these traits:
- Move AB should be the 0.618 retracement of move XA.
- Move BC should be either 0.382 or 0.886 retracement of move AB.
- If the retracement of move BC is 0.382 of move AB, then CD should be 1.272 of move BC. Consequently, if move BC is 0.886 of move AB, then CD should extend 1.618 of move BC.
- Move CD should be 0.786 retracement of move XA
Introducing the Animals!
The Gartley pattern is so popular that it has spawned its own series of additional variations and patterns that people point to when they are looking for signs in the market. These additional patterns are sometimes known as The Animals because they are named after different types of animals that exist on the Earth.
The crab is a very accurate method for looking at the Gartley pattern according to the person who discovered it. His name is Scott Carney, and he says that it is one of the most accurate ways to use the Gartley pattern simply because of how extreme the potential reversal zone is in this formation.
You take on very little risk when trading this pattern because you are supposed to use a tight stop-loss in order for the trade to work perfectly. On top of that, you stand to gain a lot when the trade works out perfectly for you.
Here is what you are looking to see with the perfect crab formation:
- Move AB falls at either the 0.382 or 0.618 of move XA
- Keep an eye out for move BC to be either 0.382 or 0.886 retracement of move AB.
- CD should be 1.618 extension of move XA.
Scott Carney was a busy person because he discovered the Bat formation just a year after he uncovered the Crab. The Bat has the following characteristics:
- Move AB can find itself at either the 0.382 or 0.500 retracement of move XA
- Move BC will either be 0.382 or 0.886 of move AB
- CD is going to be at the 0.886 retracement of move XA almost every time.
If you see this form, then you know that you are looking at the Bat version of the Gartley pattern.
The butterfly pattern can show up as either a bullish or a bearish indicator depending on which way it is pointed. When it is lined up just perfectly, the Butterfly will produce a .786 retracement with a move AB with respect to move XA. If you should notice this, then it is time to put your money down on either the bullish or bearish side of the trade depending on which way the butterfly is pointed.
You will want to keep an eye out for the Gartley pattern as a whole and for the various animal variations that have been discovered. What you may uncover is that you actually have the ability to profit handsomely from the use of the Gartley pattern because it is so effective at helping you uncover where the risk/reward potential is most in your favor.
Here’s what to look for with the Butterfly:
- Move AB at the 0.786 retracement of move XA
- Move BC coming in at either 0.382 or 0.886 retracement of move AB
- CD move at either 1.27 or 1.618 extension of move XA
- Don’t worry if you don’t notice this pattern emerge when you first start to look for it. Sometimes, it takes a while for the Gartley pattern to make an appearance. It took many people many years of study to uncover the patterns that traders now use to this day, so don’t be surprised if there is still a lot for people to learn about the patterns that exist out in the world of trading.
You may find that you have to practice a lot at identifying them as well before you can say with confidence that you have truly spotted a particular pattern.