Gartley Pattern Setup - Realtime day trading example, theory, and practice

The first place that I encountered the gartley pattern was in Larry Pesavento's book Fibonacci Ratios with Pattern Recognition.  He in turn had researched the setup from pages 221-222 of H. M. Gartley's Profits in the Stock Market which described the pioneer's trading approach to the futures market in the 1930's.  This pattern consists of a large impulse followed by a pullback in two shorter waves where AB = CD in time length.  Ideally, point D is reached as a 62% - 79% retrace of the XA impulse segment; and the shorter wave series most often in the form of a "measured move".  The power in fibonacci ratios is anticipating (in time) and entering (in price) the trade at point D with a defined risk level - buy (bullish gartley) in an uptrend, or short (bear gartley) in a downtrend.  Most pattern traders will instantly recognize this larger five-point pattern as a bull or bear flag setup.  It is also the underlying structure that defines Elliott wave theory in its simplest form.

The geometric description above is an idealized form, where points XABCD are extremes in price - as such, they record spike highs and lows.  Thick lines denote price action, while the dotted lines are the ratios between line segments that connect any three points.  The numbers on dashed segments are Fibonacci retraces (BC = AB * .38 to .79 ) and extensions (CD = BC * 1.27 to 1.62) that describe the geometric relationship between adjacent lines and define the pattern structure.  Most modern trading programs provide means to display fibonacci retraces using their drawing tools - the price levels are then available directly on the charting surface as the market moves.  It is up to the trader to have the foresight to anticipate the setup, decisiveness to take the trade at the proper time, and fortitude to objectively manage the position.

Most of the transcript that follows is taken from realtime trading on December 5, 2003.  It is interesting from the standpoint that the previous day had seen a gartley pattern present itself rigtht at 11am ("g" on chart below), and two more were to follow throughout this filtered record of the realtime trading session.  This outlines a bit of what is going on as the second leg of a "measured move" or CD segment completes to a gartley setup - the market offers the scalper the ability to enter a short position with about 1 point of well-defined risk.  As usual, the pattern calls are mixed in with a set of reversals coinciding with a 3*push sequence, wolfewave, or "3 drives" pattern.

Realtime Trading

Session Start: Fri Dec 05 09:31:19 2003
[09:31] good morning
[09:34] ES 1,064 .. revisting yesterday's 1,062.75 - 1,065.25 range
[09:40] ES 1,065 .. am setup .. ES_intraday__1205_am.gif

[09:40] trin thru the roof
[09:42] trin 2.03
[09:46] bulls may be attempting to put in right shoulder of inverse h&s pattern here on ES and NDX
[09:49] ES 1,064.25 .. very small 3*push series lower visible on 5min chart .. lots to prove
[09:50] trin just took nosedive off 2.29 hod
[09:52] ES 1,065.5 .. key upper range breakout
[09:52] openning range reversal games for lift
[09:59] another intresting piece of info from the Vegas show .. traders don't pay attention to net change vs. close .. they pay attention to the -openning- price
[10:00] just like Lukeman says .. all daytrading patterns are set up relative to the open .. Hill, Raschke, Pesavento all confirmed

[10:02] ES 1,066.5 .. eye remains focused on 1,065.25 reactio nfor support
[10:03] tick -243 .. lod .. 10-10:15 window opening
[10:06] bulls attemptint to go to work with first higher-low on 5min chart
[10:11] ES 1,065 .. bearish 3*push higher series on 5min .. just a small head's up if 1,065.25 doesn't establish as support
[10:25] ES 1,066.75 .. hod retest
[10:27] ES 1,067.5 .. breakout lift
[10:31] ES 1,066.5 .. am update .. very choppy action in rising channel .. overlapping wave structure gives caution .. ES_intraday__1205_am2.gif

[10:44] ES 1,065.75 .. test of rising channel, lower bounds
[10:58] seems ES wants a ww downside measure
[10:59] eye is on 1,064 into pullback
[11:00] fwiw .. hod came in at the 62% retrace in a gartley
[11:02] ES 1,064 .. small ww target here
[11:04] ES 1,064 .. am update .. ES_intraday__1205_am3.gif

[11:04] eye is on the fib retrace at 1,064
[11:05] 'b' wave?
[11:10] ES 1,064.75 .. 30min perspective .. can note how critical this level is .. 5th knock on a neckline of 5-day h&s pattern .. ES_intraday__1205_30min.gif

[11:12] dang.. should bounce
[11:13] using 50min intraday timing intervals based on last 2 tick spike lows
[11:20] wave 'b' possibilities confirming .. needs solid lift above 5min/20ema+40ema
[11:21] dayrange is 4.25pts
[11:21] a-b-c would measure right to gap closure
[11:23] ES 1,065.75 .. a natural shoulder woud show 1pt higher from here, if at all .. a level to monitor
[11:27] ES 1,066.75 .. watch the hod manoever and extention to 127%
[11:27] tick +580
[11:29] ES 1,067.25 .. setup for swoon .. quick flip area off 78% retrace .. ES_intraday__1205_noon.gif

[11:30] nice 'c', eh?
[11:31] ES 1,068.5 .. clean a-b-c structure now visible on 5min .. eye to "measure move" target at +3.25pts
[11:31] fwiw .. right @ 1,068.5
[11:36] ES 1,067.75 .. a-b-c .. ES_intraday__1205_abc.gif

[11:36] [cfa] you have a-b-c to close gap voo?
[11:37] no .. I took my 3.5 pts
[11:39] ES 1,067.5 .. larger 78% gartley now in play .. gap impulse + abc retrace
[11:40] fade needs move beneath 1,066.75 to confirm
[11:43] catch y'all later.. will come back around 1:30 to see if slimjim is in place
[11:57] ES 1,066.25 .. working on 50min cycle lows .. ES_intrday__1205_noon2.gif

[12:15] ES 1,065 .. finally a valid pattern .. symmetrical triangle setup .. consolidation above 30min neckline .. ES_intraday__1205_tri.gif

[12:17] dunno why .. but if you follow this silliness .. saturn-mercury @ midheaven has caused problems last few days .. watch for any breakdown of symmetrical triangle .. ASTRO__1205_am.gif

[12:19] would like to see one more bounce here in ES to confirm triangle setup
[12:28] odd how telcos are lifting
[12:32] seems most folks will wait until January to take profits .. and not pay taxes until 2005
[12:42] big fat ugly midheaven transit on radar
[12:42] final 50min timing series comes in around 12:50am
[12:43] [riddle] What is a midheaven transit?
[12:43] it is a time.. when an opposition, conjunction, or square is the most "felt" by those beneath the aspect .. in this case, NYC
[12:44] all started 2 days ago when IB, qfarts, communications breakdowns started
[12:45] was perfect timing for yesterday's 12:40 breakdown

[12:45] [el_cid] on the fib retracement when you go above 100% what's the most watched next level: 124% or 127% ?
[12:45] 127% - 162%
[12:46] also the inverse .. 78% retrace - 62% retrace .. why gartley @ 78% retrace - 127% extension, a-b-c made sense
[12:46] [tradinoncoffee] Fib math is amazing
[12:47] [tradinoncoffee] tried to get dtr interested...she asked her math teacher about it and teach said it was bunk, made me very angry
[12:48] too bad .. underpinnings of classic architecture, music, anatomy, biology, and perhaps even markets
[12:50] ES 1,064.75 .. test of lower symmetrical triangle bounds .. 3x knock on basement door
[12:51] will be 6th knock on 30min h&s neckline if it breaks any lower
[12:59] tick +426 .. tick downdraught series is done
[13:02] ES 1,066 .. pm setup .. dunno why this timing thing works sometimes (interval on tick) .. kinda weird .. ES_intraday__1205_pm.gif

[13:02] flat macd .. "no edge" here
[13:05] bears would just consider these right shoulders and rounding patterns forming on intraday basis
[13:08] here comes that astro thang
[13:12] this is the midheaven stress aspect .. ASTRO__1205_pm.gif

[13:45] ES 1,061.25 ... 30min neckline cracked .. symmetrical triangle downside measure here
[13:45] another 50min interval key time bar
[13:47] ES 1,061.5 .. pm update .. perfect timing .. ES_intraday__1205_pm2.gif

[13:48] ES .. 30min context of broken neckline .. ES_intraday__1205_30min_pm2.gif

[13:56] ES 1,060.25 .. 2*pushes lower .. 10min interval .. 3rd here
[13:56] ZB /bonds .. wr7 (widest range day) .. tomorrow is exit
[13:57] ES 1,061.. eye on ww structure here
[13:57] small positive tick momo divergence
[14:00] ES 1,060.5 .. 1pt risk control .. ES_intraday__1205_2pm.gif

[14:00] ZB /bonds .. up a full 2 handles .. exit
[14:01] ES 1,059.75 .. 3*push lower
[14:01] ww setup on 5min
[14:12] ES 1,050.75 .. ww setup .. ES_intraday__1205_ww.gif

[14:12] duh .. 1,060.75
[14:16] ES .. eye is on 1,059.5 - 1,061.5 channel
[14:26] ES 1,060.5 .. still trapped in 1,059.5 - 1,061.5 channel
[14:29] ES 1,060 .. key lod retest .. .75 risk control
[14:32] eye to 1,061.5 for stop/limit clearing
[14:40] ES 1,061.25 .. keep yesterday's channel breakout in mind on anything > 1,061.5 .. 2pt channel measure
[14:46] tick +741
[14:53] ES 1,062 .. setup for close .. ES_intraday__1205_close.gif

[14:58] ES 1,061 .. 2*pushes higher on 5min .. would ideally like a 3rd
[15:02] ES 1,060 .. almost a repeat of 11am sequence
[15:06] SP /big contract .. Raschke also played the triangle .. SP_intraday__1205_lbr.gif

[15:06] interesting observation she made: when ADX falls to "no trend" levels < 15 .. it is usually a triangle or consolidation sequence on the chart
[15:07] great examples of tick behavior in trendling vs. consolidation markets .. http://www.lbrgroup.com/index.asp?page=DailyCharts&date=2003%2D12%2D05
[15:07] all timeframes
[15:09] still feels like 11am sequence .. 55% correlation
[15:10] if so.. keep abc - gartley levels on radar .. 5min/40ema at 1,062.75
[15:22] ES 1,061.5 .. a couple measures if market is kind enough to give 3rd push higher .. ES_intraday__1205_close2.gif

[15:26] ES 1,062.75 ..
[15:26] gartley 50% - mm comes in @ 1,063 (scalp trim, 3pts)
[15:43] another choppy rising channel into a-b-c bear flag signature
[15:44] bulls may be watching the downtrend of intraday spike highs for a breakout move
[15:45] getting some MMs working on markups for weekend scanners
[15:48] ES bear flag / gartley confirming
[15:49] ES 1,060.5 .. 30min perspective .. ES_intraday__1205_30min_close.gif

[15:50] ES 1,060.. close em out here
[15:51] divergence possible on 5min chart .. maribozu-doji sequence
[15:51] good nite, all .. wild day
[15:52] treat your ladies nice this weekend, guys

 

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