The Gartley Pattern is a chart pattern that is used in technical analysis to identify potential reversals in the market. Developed by H.M. Gartley in his 1935 book “Profits in the Stock Market,” Gartley patterns are one of the most common harmonic patterns found on the financial markets.

Gartley patterns are used to trade range-bound and trending markets. They are particularly effective in these market conditions, as they allow traders to observe the interaction between support and resistance, price action, and the momentum of the price trend. Not only does this provide clear entry and exit points for the trade, but it can also help traders make decisions in a timely manner.

A Gartley pattern is composed of five distinct points, labeled X, A, B, C, and D. It appears as an ’M’ (or ‘W’) shape on the chart. The point labeled X is typically at the beginning of the chart and represents the starting point of the pattern. Point A is placed at a peak just below or above the X point. Point B is also a peak, and it generally makes a pullback before crossing point A and heading towards point C. Point C is the bottommost point of the pattern, and it is considered to be the reversal point. Point D falls in between points X and C, and it serves as the completion point of the pattern. When all the points have been identified and connected, we have a fully formed Gartley Pattern.

Gartley patterns can be used in conjunction with other forms of technical analysis to confirm potential entries and exits. For example, traders may look to moving averages, momentum oscillators, and Fibonacci retracements when determining whether or not to enter a trade. The stop-loss point is placed at either point X or point C, depending on the trader’s risk-tolerance level and strategy. The take-profit, meanwhile, is placed at point C.

The Gartley Pattern is a powerful and versatile tool for traders. It effectively identifies potential reversals in the market, providing clear entry and exit points, and it can also be used in conjunction with other forms of technical analysis to confirm potential moves. With a well-defined risk-reward ratio and clear stop-loss and take-profit points, the Gartley Pattern is an effective tool for any technical trader.