Trading with the Gartley Pattern indicator
The Gartley pattern is one of the most widely used and recognized harmonic patterns in the world of trading.
It is partly due to its simplicity and the fact that it offers a great risk to reward set ups which is the reason why traders flock to trading this pattern. Trading with harmonic patterns is a completely different field in itself.
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It is quite different compared to traditional aspects of technical analysis. While chart patterns are commonly used with technical analysis, the harmonic patterns such as the Gartley pattern is highly specific and comes with a unique way to analyze the markets.
The Gartley pattern indicator is an indicator designed for the MT4 trading platform. It aids the trader to identify this pattern in real time as it forms.
But before we get into the details of using the Gartley pattern indicator, we will cover some basic refresher sections on harmonic patterns and the rules of trading with the Gartley pattern.
What is harmonic trading?
Harmonic trading is a type of trading approach where traders look for repetitive patterns which show alignment with key Fibonacci numbers, such as retracements and extensions.
One of the main differences between harmonic trading and other types of technical analysis is that it allows traders to predict future price movements rather than trade in a reactive way, which is mostly the case.
Fibonacci numbers are one of the key aspects towards harmonic trading. The Fibonacci numbers are closely observed not just by traders but also mathematicians due to the nature of their occurrence. The Fibonacci numbers appear not just in the markets but also in the real world. At the core of the Fibonacci numbers is of course the golden ratio.
In trading, harmonic trading based method looks basically at the various patterns that are formed. Some of these include:
- Gartley pattern
- The Bat pattern
- Cypher pattern
- Crab pattern
It is up to the trader to understand how each of these different patterns work. At the outset, all of these patterns are similar. The only difference is that these patterns have different varying Fibonacci numbers to which they extend or retrace.
To be a master at harmonic trading, the trader is required to be adept at identifying all these patterns.
While earlier it was difficult to measure the different levels of the waves that are formed, now a days, technology has improved to a point where you can find automated solutions. Thus, traders can make use of the Gartley pattern EA which can help you to automatically plot these patterns in real time as the markets evolve.
However, make note that you need to also practice validating these patterns. Trading simple based off the Gartley indicator will not give you instant success. Not all patterns are validated, and they don’t always work.
Therefore, while the Gartley indicator is ideal to use as a tool which will point you to the potential patterns that are formed. From then on it is up to the trader to further research into the pattern and make a decision whether to trade or not.
What is the Gartley Pattern in Forex
The Gartley pattern in forex is a special type of a chart pattern that is formed frequently. It belongs to the family of harmonic trading patterns, which we have covered in the previous section of this article on Gartley pattern indicator for MT4.
In order for a Gartley pattern to be valid, it needs to meet its own unique retracement levels and patterns based on the Fionacci retracement and extension levels. The Gartley pattern, along with many other harmonic patterns were introduced by H.M Gartley.
This was around the time of other great well known personalities such as Ralph Nelson Elliott and W.D. Gann. Gartley introduced the patterns in his famous book called the Profits in the stock market.
The Gartley pattern and other harmonic patterns were introduced originally for the stock markets but they soon found their way into other markets due to the strong risk and reward ratio that comes with these patterns.
In his book, Gartley discussed what he called as the Gartley pattern and nicknamed it as one of the best trading opportunities that can come your way in the markets. This was presented in page 222 of the book.
Therefore, quite often you will hear other similar names such as Gartley 222 or the 222 pattern. They basically mean the same.
The Gartley pattern takes the shape of an M or a W. Depending on whether it is a bullish or a bearish Gartley pattern respectively. As the letters suggest, there has to be five turning points in the price action for the shapes to form.
Of course, each of these points need to have a specific Fibonacci level. The next picture below shows the bullish and the bearish Gartley pattern shapes.
The Basic Gartley Pattern (Bullish and Bearish)
Each of the turning points in the Gartley pattern must adhere to a Fibonacci retracement or an extension level. This is critical to the successf of validating a Gartley pattern.
The chart below shows a sample Gartley pattern, which is bullish and bearish.
Rules for trading with Gartley Pattern
Because the Gartley pattern belongs to the family of Harmonic patterns, each point in the wave or the turning point has to conform to a specific Fibonacci retracement level. These points in turn give shape to the Gartley pattern.
Here is the general outline for the Gartley pattern:
Wave XA: This is the starting point of the formation of the Gartley pattern. The wave XA basically doesn’t have any qualification criteria.
Wave AB: The second leg in the Gartley pattern is where the work starts. In this leg, the distance should be approximately 61.8% of the XA leg. The wave AB therefore moves in the counter or opposite direction to XA.
Wave BC: The third leg of the Gartley pattern, as you can imagine, this wave moves in the direction of the initial leg XA. This wave reverses the direction from B. Typically, this leg should complete near the 38.2% Fibonacci level or can extend to 88.6% of the AB leg.
Wave CD: The CD leg once again is a reversal wave and price turns around near point C. Here of course, there is a bit of a choice to make. If the BC wave completed near 38.2% of AB, then this leg should extend to 127.2% of BC. However, if the BC wave completed near 88.6% of AB, then this leg should extend to 161.8% of BC.
Wave AD: The last and final rule of the Gartley pattern is for the completion of the CD leg. The AD leg typically retraces to 78.6% of the XA move. Following this, you can expect price to post a reversal or a retracement.
Of course, having to keep all these retracement and extension levels in mind while trading in real time can be a bit tiresome. Which is why the Gartley indicator for the MT4 platform is a handy tool
How to trade with the Gartley MT4 Indicator
The Gartley MT4 Indicator is a very simple to use technical indicator. Once you install it into your indicator folder, you can drag and drop the indicator onto the chart of your choice.
In terms of configuration, you only have the colors to configure. This might be useful depending on whether you are using the light background or a dark background.
Once the indicator is installed, it will get to work. The chart below is an example of a Gartley indicator that is forming in real time.
Gartley pattern indicator for MT4
The indicator as shown, plots the Gartley pattern in real time.
One of the drawbacks is that it does not show past patterns. Therefore, it is difficult to test whether this pattern does indeed work or not.
As a result, we highly recommend that you personally use the Gartley MT4 indicator first on a demo account and trade based off the patterns before using it in a real trading account. This will also enable you to get more familiar with the Gartley indicator.
Another point to note is that the arrows that are plotted, indicating you to potential reversal zones also repaints. This means that when the arrow is plotted on the chart, there is a good chance that it can be re-plotted or repainted when a fresh new low or a high is formed.
As a result, this can put your real money to risk. Thus, it is essential that you only use the Gartley MT4 indicator on a demo trading account first instead of on a real account.
The pattern keeps adjusting to the timeframe of your choice. Therefore, in different timeframes, you might come across different patterns. Below is an example of the Gartley pattern that is slightly different from the one above.
Gartley pattern indicator for MT4, daily time frame
This is the same price chart, but we look at the daily time frame, whereas the previous chart was on the 1-hour time period.
Pitfalls to watch for when trading with Gartley pattern
There are some loopholes and traps that traders can fall into when trading the Gatley pattern. This is of course true for almost all types of harmonic trading patterns. In this section, we will talk about the pitfalls to avoid when trading with the Gartley pattern.
It is always recommended that you use a tool to help to aid you in identifying the Gartley pattern. The reason behind this is because, these patterns are very specific to Fibonacci levels of retracement.
But at the same time, it is very rarely that you come across a Gartley pattern that is textbook perfect. Due to this, traders can get subjective. However, the more flexible you are in your subjectivity, the higher the chances that you could end up trading a pattern that doesn’t look like a Gartley pattern.
Therefore, having a tool such as the Gartley indicator can be of great help to initially point you to a potential pattern that is taking shape. From there on, due to the automated tool, you can then decide whether you want to trade it or not.
Another aspect to bear in mind is that Gartley patterns and most Harmonic trading patterns are reversal patterns. At times, they could be a retracement pattern too. No one knows for sure until price has indeed made a reversal or just a correction.
In either case, traders should not ignore the trends. Ignoring the trends and trading the Gartley pattern in isolation can lead to losing trades. For example, if you come across a Gartley pattern in the middle of a major trend, chances are that the trade will be 50 – 50.
On the other hand, if you spot a Gartley pattern at the top end of a rally or near the bottom end of a downtrend, such a pattern could come with higher probability.
Traders tend to take up trading with Harmonic patterns because of the risk reward ratio that it offers. However, this should not be the sole reason why you should be trading with the Gartley pattern or with other trading patterns commonly used with harmonic trading.
The Gartley Pattern Indicator for MT4 – Conclusion
To conclude, the Gartley pattern indicator for MT4 platform is a simple but an effective tool that can give you benefits is used in the right way. Firstly, automating the Gartley pattern requires a high level of expertise.
However, this Gartley pattern indicator for MT4 does a decent job into pointing you to the right direction. You can simply open the price charts and drop the indicator onto the charts with a time frame of your choice.
You can then look back to the charts to see if there are any potential Gartley patterns that are being formed. However, bear in mind the loopholes and the traps which we covered about, when trading with the Gartley pattern.
When used correctly, the Gartley trading pattern indicator for MT4 can be very effective.