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"The
Great Gartley Controversy" |
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It is probably the best-known Harmonic
Pattern in the trading community - the
Gartley. Although many have written
articles on this pattern, the origins of the Gartley
Pattern range from erroneous to
downright misinformation. H.M.
Gartley first outlined the basic
structure of this pattern in his book, Profits
in the Stock Market, (Lambert-Gann
Publishing, 1935) on page 222. Although
contrary to what many have claimed, Mr.
Gartley was NOT
responsible for assigning Fibonacci
ratios to this price structure. In
fact, Profits in the Stock Market
did not mention anything about Fibonacci
ratios in the entire book. I know
because I own it. It's not in there. I believe
it is important to correct the prevailing
misconceptions regarding this pattern. |
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It is important to note that there are others
who have assigned different Fibonacci
numbers to the framework of the Gartley
Pattern. However, they have used a
variety of Fibonacci
numbers at the D points, essentially
labeling any AB=CD
pattern as a Gartley
if it completes at a 0.618 or 0.786 without
regard for the precise alignment. This has
created much confusion among the technical
community and it has challenged the reputation
of the pattern.
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This
controversy was one of the earliest challenges
that I faced when I initially refined the
pattern. I argued with many people that “all
Gartley
Patterns are not the same.” If
anything, the most effective Gartley
Pattern required an exact
specification of Fibonacci
Ratios to validate the structure.
Although the general structure has been
outlined previously, it was not until The
Harmonic Trader was released in
1999 that the exact rules for specific
retracements of the B point at a 0.618 and the
D point at a 0.786 were to be assigned to the
pattern. This alignment has now become the
standard in the technical community and it is
now commonly referred to as the Gartley
Pattern. The exact 0.618 B
point requirement was just one condition in
this interpretation of the structure. The
Harmonic Trader also outlined the
importance of the AB=CD
pattern and the BC projection rules
that required specific conditions to validate
the structure. The Potential Reversal
Zone (PRZ) of a Gartley
possesses several other elements that
differentiate the structure from other
patterns. The pattern should possess a
distinct and equivalent AB=CD
pattern that converges in the same
area as the 0.786 XA retracement. In fact, the
completion of the equivalent AB=CD
pattern and the 0.786 retracement are
minimum requirements for a valid Gartley.
Frequently, the 0.786 XA retracement overlaps
the AB=CD
pattern within the PRZ. In these
cases, this convergence is the defining level
of the PRZ. The BC projection is another
specific condition to validate the structure
and it must not exceed a 1.618. Although the
BC projection is a less significant number in
the PRZ than in other patterns, the 1.618
limit helps to differentiate the Gartley
structure. Typically, a BC extension greater
than a 1.618 is typically found in Bat
structures. Regardless of the required
numbers in the PRZ, the Gartley
must possess a precise 0.618 B point
retracement to validate the structure. In
fact, the Gartley
Pattern requires the most precise B
point alignment of all the Harmonic
Patterns to define the most valid
opportunities. |
Gartley
Pattern Elements:
· Precise 61.8% B point retracement
of XA leg.
· BC projection must not exceed
1.618.
· Equivalent AB=CD pattern is most
common.
· 0.786 XA retracement.
· C point within range of
0.382-0.886 retracement.
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It
has been my experience, after working with the
Harmonic
Analyzer for the past several years
that anything less than the ideal Fibonacci
alignments for the Gartley
usually results in “deeper” corrective
structures, favoring a Bat
Pattern completion. Although this
strict application of the Gartley
alignment reduces the number of pattern
matches, it is critical in identifying valid
patterns and effectively differentiating these
two similar structures. |
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It
is important to note that the Gartley
Pattern is simply one type of
"M" or "W" Elliott Wave
corrective pattern. Although similar in
structure, the Bat
Pattern is a distinctly different
entity, utilizing other rules to define the
set-up. Such specification of price
structures, quantified by Fibonacci
calculations, is essential in Harmonic
Trading. In terms of the Gartley
Pattern, the set-up that yields the
most valid reversals is the one illustrated in
The
Harmonic Trader.
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As with all Harmonic
Patterns, the specification of Fibonacci
points within each structure is extremely
critical in determining valid trading
opportunities. The Gartley
Pattern exemplifies the necessity of
such specification, as the structure
frequently resembles a Bat
Pattern as it completes. The Harmonic
Analyzer (HA) has been instrumental in
the identification of valid Gartley
Patterns. The software is able to find
those Gartley
structures that possess only the best Fibonacci
alignments, including precise B point
retracements. |
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On a final note about Harmonic
Patterns, The
Harmonic Trader outlined many
unprecedented strategies that distinguished
patterns based upon specific price point
alignments. This differentiation increased the
effectiveness and served to demystify the
confusion of the overall application of these
methods. Again, I must emphasize that although
others have utilized a variety of Fibonacci
numbers in their analysis of Price
Patterns, the exact specification of price
structures, quantified by Fibonacci
calculations, is what separates Harmonic
Trading from the rest. |
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