The Gartley Pattern - Part 4
On the internet today there is much conflicting information about what a Gartley pattern really is. To clarify this matter once and for all, let’s see what H.M. Gartley has to say about his namesake pattern. The following information is reprinted from “Profits in the Stock Market” by H.M. Gartley with the permission of Nikki Jones from the Lambert Gann Publishing Company.
“One of the Best Trading Opportunities”
In the life of those who dabble in Wall Street, at some time or other there comes a yearning – “just to buy them right, once, if never again”. For those who have patience, the study of top and bottom patterns will provide such an opportunity every now and then, - the chance does not arise every day, but when it does, a worthwhile opportunity, with small risk, becomes available. Let us look at Figure 27 (A). When, after an intermediate decline in either a bull or a bear market, such as A-B in the diagram, has proceeded for some time, and activity has shown a definite tendency to dry up, indication that liquidation is terminating, a minor rally like B-C sets in, with volume expanding on the upside. 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.
In eight out of ten cases wherein each of these specific conditions occurs, a rally, which will provide a worthwhile profit, ensues. In the other two cases, only small losses have to be taken. In trading this formation, the observer is depending upon the probability that either a head-and-shoulders, or double bottom, which are the two reversal patterns which occur most frequently, is developing.
The art in conducting an operation of this kind lies in:
a: Having the patience to wait until a decline of substantial proportions has developed;
b: Observing that all conditions laid down are present
c: Having the courage to buy just as soon as the minor reaction which tests the bottom shows signs of terminating; and
d: Having the courage to get out with a fair profit (10-20 per cent), or at least protect it with stops.
Hourly charts of the averages, available for guiding the operation, repay the market student for all the efforts he puts into keeping them day after day, when they are of less practical use.
Similar opportunities occasionally develop for that small part of the trading fraternity which has the intestinal fortitude and temperament to sell stocks short. The case in reverse is laid out in Section B, of Figure 27.
In part 5 of this series of articles, we will continue to discuss the modern day version of the Gartley Pattern.
Ross Beck, FCSI
To obtain a free subscription to the Gartley Trader Futures Newsletter, click here