|
Following a recent round of very popular CFD workshops I conducted it became evident that there is a need for a specific workshop on technically based trading strategies that include a seasoning of fundamentals.
As part of the holistic approach to building enduring wealth that Wealth Strategies will offer later on this year, we will be holding several ‘Active Trader Workshops’ where we intend to teach Elliot wave analysis and several different trading strategies that can be used in and around Elliot wave formations. Break out trading methods on the third wave, for example, will be shown. We’ll also cover short term candle reversal patterns at the end of Wave Five and even how share fundamentals support any trend or imminent reversal. It’s certainly going to be a thorough and comprehensive three days!
One other thing I am keen to build upon is exploring the full capacity of ProfitSource. Over the three days we will investigate back testing and advanced break out formations. One of those key formations for break-outs or trend reversals will be the Gartley Pattern.
Gartley introduced the world to his pattern in 1935, around the time that Elliot was putting together his work on Elliot Wave. Like Elliot, Gartley saw the tremendous benefit in using Fibonacci ratios in his analysis and devised the Gartley pattern to take these into account. I have taken the details of how the formation manifests directly from ProfitSource’s help function so you can see the relevance of the Fibonacci ratios.
|
Swing/Range
|
Relationships and Remarks
|
|
XA
|
A swing in the direction of the trade, in this case long
i.e. Price at X is lower than price at A.
|
|
AB
|
Range equals 61.8% of XA range
i.e. Range AB retraces 2/3 of the original swing range
|
|
BC
|
Range is between 61.8-78.6% of AB
i.e. Again the swing reverses back to the direction of the trade, and retraces less than the previous swing in the opposite direction (range AB)
|
|
CD
|
Range is between 127-161.8% of BC
i.e. The swing against the trade retraces quite a lot more than the previous swing in the opposite direction (BC), but D must not be less than the starting point X.
|
|
AD
|
Range is 78.6% of XA
|
The mathematical requirements set out in the above table are strict and have to be adhered to for the formation to truly be called a Gartley pattern. What’s interesting to note for Gann traders is that the AB range often matches the CD range in magnitude (or extensions thereof, such as 150%).
By understanding the basics of trend reversal trading and combining this with a Gartley pattern it becomes obvious how analysis can be turned into dollars. There is an instant and obvious example here in Australia’s own Share Price Index Futures contract.
Chart 1 – SPI 200 Daily Bar Chart
click chart for more detail
This bearish pattern occurred just before the most recent pullback in global equity markets and was a clear sign that something was about to happen. Although the software recognizes the pattern, the skill of reversal trading (and recognizing the best Gartley patterns) is one that needs to be acquired before you attempt such a trade. Remember that the majority of traders make profits trading with the trend, so reversal trading should only be attempted if you are a confident and experienced trader.
Make it happen!
John Jeffery
|