Step 1: The XA Move
The first step in identifying a Gartley pattern occurs when the market creates an impulse or anchor leg(XA). Once the initial move is created and identified, we can then begin to look for the rest of our criteria to be met.
Step 2: The AB Move
After our initial (XA) move, we will look for price action to make and complete a valid (B) leg move. For the Gartley pattern, the (B) leg is considered valid if the price action completes between the 61.8 and 78.6 retracements of the (XA) leg. This means the wick of the candle must at least touch the 61.8 retracements, yet not touch 78.6 retracements.
Step 3: The BC Move
Once the criteria for step 2 are fulfilled, we can now look for a valid (C) leg. The market creates a valid (C) leg by fulfilling a minimum of 61.8 retracements of the (AB) leg. As in step 2 as long as the candlewick touches the 61.8, this move is considered to be valid. The optimal retracement zone will be between 61.8 and the 78.6, yet price action is allowed to retrace deeper as long as it does not break the (A) leg. If price action (meaning the wick) pushes beyond the (A), the pattern is considered invalid.
Step 3: The D Completion
The (CD) leg of the Gartley pattern should equal the length of the (AB) leg giving the trader an AB=CD pattern completion. In a perfect situation, this AB=CD completion should also meet at a 127.2 extension on the (AB) leg as well as the 78.6 retracements of the (XA) leg. Once the (C) leg is complete, the trader should project this area on their charts and predict the pattern completion level.
Entries, Stops, and Targets
Entries: As with most advanced patterns, the recommended entry for this pattern is an aggressive limit order in the areas of completion. More conservative traders may want to look into taking a different approach.
Stops: I will go over a few different options for stops in our training, but a cardinal rule is that it stops.
NEED to be BEYOND the high/low point of the X leg. Target 1: Target 1 is the 38.2 retracement of the (AD) leg. If targets are obtained, it then stops move to breakeven. Target 2: Target 2 is a 61.8 retracement of the (AD) leg.
