The Gartley Pattern – Part 10
Now that we have identified the structure of the Gartley pattern, how will we enter the market? Once the market touches the Fibonacci retracement level (not the Fibonacci extension level), our trade setup criteria is complete. But what entry orders will we place? Entry methods really depend on our individual trading style. Some of us prefer to trade with multiple contracts and scale out the market. Others choose to enter the market with a single contract and specify a target and stop with a certain risk/reward ratio. We will consider a few different methods based on trading with single contracts.
Our first entry method is simply entering the market with limit orders with the exact number of our Fibonacci retracement level. The benefit of this entry method is that the fill price is typically better than other methods that wait for confirmation. The downside to this strategy is that if the market doesn’t show any signs of reversing at the 78.6% retracement, you will be filled, then quickly stopped out at the point where the Gartley pattern fails.
Our second entry method is to enter on a X bar reversal. X is a variable that is typically 1,2 or 3. The benefit of this entry would be that you would only get filled if the market clearly reverses where you expect it to. If the market rips right through your Fibonacci level without stopping and the pattern fails, you will not get filled. However the downside to this strategy is that if you did get filled on a X bar reversal, the fill price is typically not as good as would be the case if you simply bought or sold on the Fibonacci retracement number. This would especially be the case if the range of the bars in the X bar reversal strategy was significant.
For example, if we were to use a 2 bar reversal on a bullish Gartley pattern we would use the following steps…
Wait for the market to touch our Fibonacci retracement level. Buy one point above the highest high of the previous two bars (not including inside bars). Remember to wait for a bar to complete before you count it.
Ross Beck, FCSI
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