We study the features of the formation and use of the popular pattern.
In my blog for beginners, a lot of attention is paid to harmonious trading. And today I would like to return to its origins. No, I will not re-describe the principles and name the patterns. I will pay tribute to the author, the person from whom it all began. It’s about Harold Gartley. His books at the beginning of the last century were sold at the price of cars. The general public believed that the Holy Grail is described on their pages, which will ensure a comfortable old age for themselves and their descendants. What can be seen today absolutely for free, almost a hundred years ago, was incredibly expensive. Does this mean that harmonious trading is inefficient? Not at all necessary! Any dish needs a good cook.
The main development of Harold Gartley was the eponymous pattern, which is now sometimes called the “Gartley Butterfly”. It has much in common with the “ Perfect Butterfly ” model described in one of the previous materials. Differ, perhaps, correction levels and targets. In our case, we are talking about a pullback of 61.8% and a target of 78.6% of the XA wave. If at this level the attack of “bears” in the “bull” market or “bulls” in the “bear” does not stop, we can talk about the transformation of the Gartley pattern into “ Crab ”.
On the four-hour EUR / JPY chart, there was a 61.8% correction to the XA downward wave. When the pair quotes returned to the convergence zone at the level of 78.6%, the trader using the principles of harmonious trading should have assumed the presence of the “Gartley Butterfly”. As a confirmation signal of a potential reversal, you can use the indicators. A good performance is demonstrated by the divergence between the extremes of the currency pair chart and the MACD indicator.
You can work out the model at the same time interval (for example, a strategy based on a breakthrough of diagonal resistance in the form of the lower boundary of an upward trading channel has proved to be good), but a trader familiar with the “ Two screens of graphic models ” trading system can use all its main advantages. Let me remind you, first of all, we are talking about a significant profit factor. Switching to a 30-minute time frame for the EUR / JPY pair revealed a combination of reversal patterns “ Three Indians ” and 1-2-3. The breakthrough of the correctional minimum level of the last graphic configuration became the basis for entering a short position. It makes sense to set a protective stop order at the maximum swing level. In the case of the sale of the euro against the yen, its value is about 50-60 points.
To identify targets for shorts, we move to a larger time interval (240 minutes) and use our knowledge in the field of harmonious trading. Testing the “ Shark ” pattern allows you to get a positive financial result in the amount of about 600 points. The profit factor exceeds 10. We do not forget to use the principle of ” keep losses low and let profit grow .”
It is always difficult to start, and in this respect, Harold Gartley has earned a monument during his lifetime. Its developments are easy to base on a whole line of technical analysis, which is currently successfully used not only by private traders but also by large banks and hedge funds. Another thing is that automatically following the rules rarely leads to positive results on the long-term investment horizon. The market as a living creature, it is constantly changing, and to tame it, you need a creative approach.