The Gartley Pattern – Part 2
In the previous article we looked at the background of the man who wrote the book, “Profits in the Stock Market,” H.M. Gartley. We will consider the further evolution of what today is simply referred to as the Gartley Pattern.
I spoke on the phone with Larry Pesavento last weekend to find out how he came across the Gartley Pattern. He told me that he came across the pattern when he was working for Conti Commodities in Los Angeles in the 1970’s. The Conti office just happened to be four blocks away from the Investment Center Bookstore in West Los Angeles. Don Mack gave Larry full access to the Investment Center Bookstores library. Larry asked Don which book he should read as Don had an immense selection of books. Don didn’t hesitate and told Larry to read “Profits in the Stock Market by H.M. Gartley.” After spending some time with master market geometer Bryce Gilmore from Australia, Larry realized the importance of the Fibonacci ratios and started applying the 61.8% Fibonacci retracement to the Gartley pattern. Larry started to filter his Gartley pattern trade setups by waiting for a 61.8% retracement to be complete at the end of the pattern that Gartley illustrated in his book. Larry noticed that this added criteria enhanced the probability of the Gartley pattern.
After speaking with Larry, it appears that Bryce Gilmore was also the individual to let him know that he should use the square root of .618. This ratio is .786 and thereafter Larry started to use the 78.6% retracement as a filter to his Gartley patterns in addition to the 61.8% retracement. For those of you that are interested, the number 786 is popular for other reasons other than trading especially in the middle east. The first verse of the Quran it states, “In the name of Allah, the Beneficent, the Merciful”. When we assign numerical values to the Arabic letters, the number that comes from this first verse is 786!
One of Larry Pesavento students, Scott Carney decided to do some further work on the Gartley pattern to try to improve the reliability of the pattern. Scott felt that each leg in a Gartley pattern should have a Fibonacci relationship to the leg immediately preceding it. The caveat to this criteria of course is that these relationships cannot be exact. If we were to wait for a Gartley pattern with these exact parameters, we would be waiting a long time! Therefore Scott assigned a certain % tolerance to each of the legs in his version of the Gartley Pattern.
In part 3 of this series of articles, we will continue to discuss the further evolution of what is today known by most traders as the “Gartley Pattern.”
Ross Beck, FCSI
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