Chris Irvin. Christopher Irvin Director of Stock and Options Education

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2 Would you like to know how to Earn at the Turn? If you would like a better understanding of the signals that could lead you into fresh trading opportunities, take a few moments and become familiar with the Gartley Pattern. If you are a fan of harmonic chart patterns the names Butterfly, Bat, Cypher, and Gartley may bring a smile to your face. But, if you are new to technical analysis, these names may not mean much to you. That is about to change. Christopher Irvin Director of Stock and Options Education The Butterfly, the Bat, the Cypher and the Gartley patterns are advanced harmonic chart patterns that go well beyond the basic concepts of candlesticks, trendlines, and support and resistance. If you have ever wondered what the professionals know that you may be missing, these patterns may solve the mystery. Each of these patterns are incredibly powerful signals that professional traders use to identify retracement levels and entries. They are patterns that every trader should know and this guide will introduce you to one of the most common...the Gartley Pattern. Understanding this pattern could open your eyes to fresh insights into technical analysis. In this guide, you ll define what the Gartley Pattern is, understand how to spot it, and learn how to use this critical pattern in your trading plan. BONUS: Read to the end to see the Gartley Pattern spotter exercises! Yours Truly, Chris Irvin P.S. For real-time, up-to-the-minute stock picks and market updates, follow us on social: Copyright 2015 Market Traders Institute, Inc MarketTraders.com i

3 The Gartley Pattern in Layman s Terms One common way to manage price swings on stock charts is to identify ABCD patterns. The pattern actually looks very similar to a lightning bolt. The ABCD pattern is made up of three phases. The initial phase is known as the rally. The rally is identified with an A at the initiation and a B at the completion. This initial move is often referred to as the AB boundary. Following the rally, the second phase is known as the retracement. The retracement phase allows the primary trend to take a breather before continuing on its original course. The retracement phase begins at the end of the rally, which is the B and ends at the C. The C is a point where the original trend takes back control from the retracement phase. The final phase of the price swing is known as the extension. This phase takes the price from the end of the retracement (which is the C), to the D extension above the previous B high (in the case of a bullish move). The Gartley is a pattern that forms its own sub abcd price swing during the BC retracement phase of the ABCD price swing. Understanding the Gartley Pattern, and its development, can benefit you as a trader in two ways. First, the Gartley Pattern, can provide the trader with tradable counter trend signals. Second, when you understand the retracement and the extension levels of the pattern, you could be able to identify when the counter trend is ending and when the extension phase is beginning. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 1

4 Why is it important to understand when the retracement is ending? It is important because many of the most lucrative trading opportunities will be found in the C to D extension phase. The Gartley Pattern can help traders find entry points on the primary trend s direction. This pattern could help you to learn when to make the turn. And, that is where we make our money! To some traders, the Gartley Pattern can be intimidating. The tools used to identify any harmonic pattern, including the Gartley Pattern, may look a bit overwhelming, but once you understand the methodology behind the creation of the pattern, those fears will fall away. One of my favorite sayings is everything is easy IF you know what you are doing, and it definitely applies in this case. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 2

5 The Gartley Pattern: The Beginning The Gartley Pattern has its foundation within the Fibonacci ratios. If you are unfamiliar with Leonardo Fibonacci, it will suffice to know that he was considered to be one of the greatest mathematicians of the middle ages. One of his most important contributions to the Western world was the introduction of the arabic numeral system to the Roman Empire. Another contribution made by this scholar was the introduction of a series of numbers that is now known as the Fibonacci Sequence. It looks something like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, This seemingly random set of numbers is actually anything but random. If you were to look deeper into the study of the Fibonacci sequence, you would learn that the Fibonacci numerical sequence is prevalent in many aspects of the world in which we live. From the numbers of petals on a bouquet of Shasta Daisies, to the architectural balance and symmetry found in the Parthenon, the Fibonacci sequence and the ratios derived from the sequence, provide powerful structure to the order of our world. See the Fibonacci ratio taught on the live market charts and the trade setups it s alerting traders of right now in a free webinar. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 3

6 The Tell-All Fibonacci Sequence As you may have already guessed, the Fibonacci numerical sequence also plays a major role in the financial markets. As well as having a powerful influence in science and nature, the Fibonacci sequence also has a major impact on human psychology and, in turn, the financial markets. The Fibonacci numerical sequence is also the foundation of a series of ratios that traders use to derive, known as Fibonacci retracement and extension levels. These ratios are created when, starting with the eighth number in the Fibonacci sequence, we divide one number by the numbers prior to, and the following after that number. Example: = =.618 Additional important Fibonacci ratios are derived when starting with the eighth number in the sequence, one number is divided by the numbers that are two numbers prior and two numbers following. Still others are the result of taking the square roots of previously derived Fibonacci ratios. The good news is that if this type of math makes your head spin, you don t need to worry. The Fibonacci ratios that are used to evaluate the financial markets, and more specifically the Gartley Pattern, have already been calculated and are at the heart of some amazing technical analysis tools. The easy part is learning how to use those tools. The most frequently used Fibonacci ratios are as follows:.86,.786,.618,.382, 1.18, 1.27, 1.618, Copyright 2015 Market Traders Institute, Inc MarketTraders.com 4

7 A GPS for Your Trades These ratios are foundational to the understanding of the ABCD price swing. As discussed previously, the ABCD price swing moves in three phases. The rally, the retracement, and the extension. The rally from A to B will always have a measurement of one, regardless of the actual price movement. The retracement phase from B to C will always be a percentage of the initial AB rally unless the trend is reversing. We will use the Fibonacci ratios that are less than one (e.g..382,.618,.786,.86) to identify the potential retracement levels. Since the extension phase will take price above the original AB move in a Gartley Pattern, it will be measured with a ratio that is greater than one (e.g. 1.18, 1,27, 1,618, 2.618). The next part of this discussion is the most critical aspect of understanding the development of the ABCD price swing. Based on the correlation of the ratios as they are derived, we are able to use the retracement levels to project the extension levels. Example: 1) The.382 retracement will correspond to the CD extension. 2) The.618 retracement will correspond to the CD extension. 3) The.786 retracement will correspond to the 1.27 CD extension. 4) The.86 retracement will correspond to the 1.18 CD extension. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 5

8 When the retracements and extensions are applied to charts, traders are able to project profit targets based on correlations between the two. It really is like having a GPS for your trades. When applied to a chart, the Fibonacci retracement and extension levels will look like this: Copyright 2015 Market Traders Institute, Inc MarketTraders.com 6

9 Back to the Gartley Pattern Now that we have some understanding of Fibonacci ratios and how they are used in the markets, let s focus our attention back on the Gartley Pattern. As stated previously, the Gartley Pattern is one of several patterns that help traders navigate the BC retracement phase of the price swing. The example below shows where the BC retracements are found in the trend. Based on the fact that the Gartley Pattern is a counter trend move, the price swing is notated with lowercase letters and is referred to as a sub-abcd move. Example: The Gartley Pattern takes the same Fibonacci based price swing that we use in the primary ABCD move and inverts it to measure the retracement phase. The Fibonacci retracement and extension ratios are the same, but they move against the primary trend on a smaller scale. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 7

10 Gartley Pattern Phases The initial phase of the Gartley Pattern is the primary AB retracement. The sub a begins at the primary B. From the sub b, the market s been proven to retrace back to the.618 retracement level as shown below. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 8

11 The next move of the Gartley Pattern is the sub ab retracement to the sub c. This retracement moves the market back to a level that is at or near the.618 retracement of the ab boundary. The third phase of the Gartley Pattern is the sub extension that moves the sub d extension down to a level that is approximately Copyright 2015 Market Traders Institute, Inc MarketTraders.com 9

12 The sub d extension may identify the low point of the retracement, which can also be identified as the primary C. This level will typically correspond to a level that is at or near the.786 retracement of the primary AB boundary. Once the primary C has been identified, the trader can enter into the primary trend. In this case re-establishing the bullish move. PRO TIP: For a full lesson on the Fibonacci Golden Ratio and how it could predict entry and exit points for your trades, go to Lesson 6 of The Ultimate Stock Course. Not an MTI student? Get a sneak peek of the Fibonacci Golden Ratio on the live market charts when you register for an upcoming webinar. Check the schedule and grab a ticket here. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 10

13 What Does it all Mean? Once you confirm that a Gartley Pattern is in motion, you could prepare a trading plan to profit on the CD movement. As it is taught in The Ultimate Stock Course, you want to confirm the sub abcd boundaries first before looking to trade in the Gartley Pattern. Once you know where the sub d lies on the chart, you know where the larger trend s C is located. Based on the location of the C, you can project the corresponding D extension level as your profit target. That s the main value of a Gartley Pattern. Bulls do it, Bears do it... Remember that when you re trading a bullish ABCD movement, your Gartley Pattern will have a bearish sub-abcd from B to C of the major trend. The opposite also holds true. You can find a Gartley Pattern on a bearish ABCD movement, but you ll need to remember that your sub-abcd will be a bullish trend. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 11

14 Gartly Pattern Exercises Now that you know the ins and outs of the Gartley Pattern, get your hands dirty. Below you ll find a series of exercises and helpful hints for spotting Gartley Patterns and finding trends within trends. Copyright 2015 Market Traders Institute, Inc MarketTraders.com 12

22 Free Ticket: Tactics for Higher Returns with Stock Trading. Now that you ve mastered one market pattern, it s time to expand your horizons. There are a handful of market patterns that could help you detect market shifts in direction more quickly, trade trends and find potentially profitable entry and exit points like a pro. To learn more patterns and to get an up-to-the-minute market review update, attend an upcoming webinar (free ticket for The Ultimate Trader s Guide to Gartley Patterns Profits owners). Register Now Copyright 2015 Market Traders Institute, Inc MarketTraders.com Copyright 2015 Market Traders Institute, Inc MarketTraders.com 20

23 MARKET TRADERS INSTITUTE Creating Successful Traders That s our vision. Often referred to as MTI, Market Traders Institute Inc., is a financial education and training company based in the Orlando suburb of Lake Mary, Florida. We provide education to beginner, intermediate, and advanced traders. For many, MTI is synonymous with high standards, effective teaching, sound instructional materials, and a dedicated commitment to performance-oriented results. For more information, visit MarketTraders.com. Copyright 2015 Market Traders Institute, Inc. MarketTraders.com 400 Colonial Center Pkwy Suite #350 Lake Mary, FL Ph: All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs. The information contained in this book does not constitute financial advice or a solicitation to buy or sell any securities of any type. MTI will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The information contained in this advertisement is subject to the terms and conditions in our GENERAL DISCLAIMER. Please read our RISK DISCLAIMER for more information Copyright 2015 Market Traders Institute, on the Stock Inc. market and the associated MarketTraders.com risks. 21