The Gartley and the Animals
Once upon a time, there was this insanely smart trader dude named Harold McKinley Gartley.
He had a stock market advisory service in the mid-1930s with a huge following. This service was one of the first to apply scientific and statistical methods to analyze the stock market behavior.
According to Gartley, he was finally able to solve two of the biggest problems of traders: what and when to buy.
Soon enough, traders realized that these patterns could also be applied to other markets. Since then, various books, trading software, and other patterns (discussed below) have been made based on the Gartleys.
Gartley a.k.a. "222" Pattern
The Gartley "222" pattern is named for the page number it is found on in H.M. Gartleys book, Profits in the Stock Market. Gartleys are patterns that include the basic ABCD pattern we've already talked about, but are preceded by a significant high or low.
Now, these patterns normally form when a correction of the overall trend is taking place and look like 'M' (or 'W' for bearish patterns). These patterns are used to help traders find good entry points to jump in on the overall trend.
A Gartley forms when the price action has been going on a recent uptrend (or downtrend) but has started to show signs of a correction.
What makes the Gartley such a nice setup when it forms is the reversal points are a Fibonacci retracement and Fibonacci extension level. This gives a stronger indication that the pair may actually reverse.
This pattern can be hard to spot and once you do, it can get confusing when you pop up all those Fibonacci tools. The key to avoiding all the confusion is to take things one step at a time.
In any case, the pattern contains a bullish or bearish ABCD pattern, but is preceded by a point (X) that is beyond point D. The "perfect" Gartley pattern has the following characteristics:
Move AB should be the .618 retracement of move XA.
Move BC should be either .382 or .886 retracement of move AB.
If the retracement of move BC is .382 of move AB, then CD should be 1.272 of move BC. Consquently, if move BC is .886 of move AB, then CD should extend 1.618 of move BC.
Move CD should be .786 retracement of move XA[You must be registered and logged in to see this image.]