The Bullish Gartley Strategy

The Bullish Gartley Strategy is based on the retracement strategies that were outlined by H.M. Gartley in his 1935 book. There are two versions of this strategy: bullish and bearish. In today’s article, we will talk about the bullish component of this strategy.

The bullish Gartley pattern is a complex chart pattern that aims to use points of downward price retracement as a way of identifying a possible upward price reversal point. The bullish Gartley pattern is a bullish reversal chart pattern. 

As is seen from the simplified sketch above, the bullish Gartley pattern resembles an inverted “W”. The pattern should be able to show an XABCD formation as shown above if correctly traced. The pattern is traced by connecting the points with trend lines as follows:

–       It starts with a bullish move from point X to a point A.

–       There is a short retracement from point A to point B.

–       The uptrend resumes again to point C. Point C is not usually on the same level as point A).

–       There is a downward move from point C to point D. This completes the bullish Gartley.

If a trader can correctly trace the bullish Gartley pattern on the charts, he can cash in on the full reversal that is sure to occur from the point D.

Rules for the Bullish Gartley Strategy

Central to the use of this strategy is the identification of the bullish Gartley pattern from the currency chart. There are rules that must be followed in order to identify a true bullish Gartley pattern, as it is very easy to get caught out by many fake outs or fake patterns that resemble a bullish Gartley but which are really something else.

These rules have to do with being able to detect a true XABCD pattern and are listed below:

1)    The price move that is represented by the AB line must be a 61.8% retracement of the price movement represented by the XA line. The dotted line XB should therefore show the 61.8% reading (please refer to the diagram above).

2)    The next move following AB is the resumption of the uptrend. This is represented by the line BC. The BC price movement should be an upward retracement of between 61.8% and 78.6% from the price movement AB. In other words, point C must be below point A on a horizontal plane. If point C is at the same horizontal plane as point A or even above point A, the chart pattern rule for the bullish Gartley is invalidated.

3)    Next in line is the downward price retracement from point C, represented by the line CD. CD must be 127% to 161.8% retracement from line BC. This means that point D MUST be below point B, but remain above or at the same horizontal plane as point X.

It is only when the rules above have been clearly obeyed that a true bullish Gartley pattern has formed and we can truly say that the trader has a good basis for going long at point D.

Traders should be very alert to pattern failures. It is best to practice the identification of this pattern on a demo account before attempting it on a live account.

Indicators

This strategy uses a single indicator which is a customized indicator that helps the trader to plot the XABCD lines. This indicator is known as the  . Once you have downloaded this indicator, attach it to the Indicators folder of your MT4 trading client, then attach it to the chart when you open your MT4 platform and it will automatically plot the lines as shown in the chart above. Click here to download the indicator.

Time Frames

This strategy can be used on any time frame and for any currency pair.

Setting Stop Loss and Profit Target

There are no hard and fast rules for setting the stop loss targets and the profit targets. For the stop loss, the key is in identifying when the point D has been reached so as not to get stopped out if prices are still retracing. Once the point D has been clearly identified, the stop loss can be set at a set number of pips beyond it, taking into cognisance the time frame used in doing the trade analysis. For instance, it is unrealistic to set a 40 pip stop loss if the analysis was done on a daily chart, seeing the wide difference in pips between the key points.

Profit targets will depend on using technical parameters like support/resistance levels, candlestick reversal points or even news trades that may counter the trade.