The Gartley Pattern – Part 8
In part 7 of this series, we examined the benefits of using a 78.6% retracement as part of the criteria of the modern day Gartley pattern. This week are going to have a closer look at the corrective aspect of the pattern.
The Gartley pattern, in the context of the original and modern versions, is simply a trend move followed by a countertrend move. According to Elliott Wave theory, the counter trend move is made up of overlapping waves, unlike the initial impulse that precedes it. This countertrend move is what R.N. Elliott identified as the most common corrective wave structure. He referred to it as the “Simple ABC Zigzag Correction.” What does this look like?
A simple ABC correction is made up of three waves. The first wave labeled A is the initial counter trend leg that follows and impulsive trend move. The second wave labeled B is a retracement of the first leg, however this retracement will not exceed the beginning of the ABC correction. The third leg will take out the end of the wave A and will terminate at Fibonacci extension level of 100% (where the price range of wave A and the price range of wave C are equal to each other.) In the original Gartley material, there is no discussion of this type of correction. This is all that Gartley said, “And when a minor decline, after cancelling a third to a half of the preceding minor advance (B-C) comes to a halt, with volume drying up again, a real opportunity is presented to buy stocks, with a stop under the previous low.”
Some Gartley traders have created additional unnecessary rules in regard to the “minor decline” that Gartley referenced above. Does the end of wave A have to terminate at the 61.8% Fibonacci retracement? Does the end of wave B have to complete on a Fibonacci retracement? In my opinion the answer is no. The most important modern improvement of the Gartley pattern in regard to the corrective section of the pattern is the equality of the price range of wave a and wave c. This symmetry of the two waves can be seen in many other classical technical patterns such as flags, pennants and triangles. After a breakout from these patterns, the market will often run about the same length as the wave that precedes the consolidation part of the pattern.
Ross Beck, FCSI
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