Written by and copyright © 20052017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information.
The Gartley pattern is named after its founder H.M. Gartley. It's sometimes known as the Gartley 222 because it appeared on page 222 of his book, Profits in the Stock Market,
published in 1935. I programmed my computer to automatically find this pattern and tested how well it works. I split the Gartley pattern into two articles. This article discusses
the bearish Gartley, the variation with a downward breakout.
Let me also say that I have not read Gartley's book, so details of this pattern are based on Internet sources.

Bearish Gartley

Important Results for Bearish Gartley
Overall performance rank (1 is best): Not ranked
Break even failure rate: 11%
Average drop: 18%
Throwback rate: Not studied
Percentage meeting price target: Up to 94% (94% reach point B)
The above numbers are based on just 72 perfect trades in both bull and bear markets. See the glossary for definitions.


Bearish Gartley Identification Guidelines
The Gartley pattern is complex because it deals with Fibonacci ratios. Trying to find it without a computer or calculator is a difficult exercise.
The chart pattern can be classified as a variation of a measured move up. The A and C valleys look like an
ugly double bottom, too.
Having so many rules makes the pattern rare. Here are the traditional identification guidelines for the pattern.
Characteristic  Discussion 
XA  Price drops from X (see figure on the right, not drawn to scale) to valley at A. This is typically a large downward move to accommodate the retraces that follow. 
AB  Price retraces from the valley A to peak B about 61.8% of the XA move. 
BC  After peaking at B, price drops to C. The BC move retraces 61.8% or 78.6% of the AB rise. For testing, I chose to interpret this as a range of acceptable values. 
CD  The final leg of the pattern sees price rise from valley C to peak D. The CD move is 127% or 161.8% of the BC move. For testing, I chose to interpret this as a range of acceptable values. 
Invalid  If price rises above X on the way to finding D, then the pattern should be ignored. 

The Bearish Gartley Retraces

Bearish Gartley Trading Tips
Trading Tactic  Explanation 
Short  Once price turns at D, short the stock. That's the problem with trading this pattern. How do you know the stock has completed the turn at D? For an estimate of the
turning price, use the BC move. CD should be 127% or 162% longer than BC, but be flexible since it rarely holds true. 
Stop  I chose a close above X as the stop location but once turn D is in place, that could serve as a closer stop. I did not test this. 
Measure Rule  The target price zone is between peak B and valley A. The associated figure shows how often price reaches those targets. 
For an explanation of the measure rule, refer to the figure on the right.
I tested the pattern and measured the drop from the high at D to either a 20% trend change (price rises 20% from a valley) or a rise above X.
I found that 6% of the patterns I looked at failed to drop to B before rising above X. The other 94% reached B or continued lower. I did not measure those that failed to
turn at D (they kept on rising).

The Measure Rule

Fiftythree percent dropped to C. Just under half, 42%, reached or exceeded the bottom of the Gartley, at A.
Notice that most of the patterns stop in what's called the corrective phase of the measured move up (BC). This is a congestion region that often stops price. See
"Completion" in the trading tactics table of the measured move up for more information.
Bearish Gartley Testing Methodology
To test the performance of the bearish Gartley, I programmed my computer to find all peaks and valleys within 5 days. In other words, I looked for the highest high (peak)
from 5 days before to 5 days after (11 days total) the peak. I did the same for valleys.
Then it was just a matter of finding turns that fit the Gartley profile.
Since finding an AB retrace of exactly 61.8% would make the pattern too rare, I used a range of 61% to 62.6% (that is, plus or minus 0.8 around the 61.8% value).
The other ranges worked well, so I didn't change them.
Using daily price data from January 1990 to April 1, 2013, I found 69 stocks with Gartleys (but I used over 1,000 stocks in the search). That gave me 72 individual patterns.
I did not split performance into bear or bear markets.
Bearish Gartley Performance Statistics
Table 1: Performance of Strict and Loose Gartley Patterns
Measure  Strict  Loose 
Measure rule: reaches A  42%  30% 
Measure rule: reaches B  94%  95% 
Measure rule: reaches C  53%  44% 
Break even failures  11%  19% 
Average length (days):  114  76 
Median length (days)  62.5  63 
Short pattern performance  18%  15% 
Long pattern performance  19%  14% 
I show the "strict" Gartley retraces in the figure for reference. The loose interpretation allows AB retrace of XA to vary from 61.8% (the strict version uses 61% to 62.6%) to a range
of 50% to 78.6%. I show the performance results of tests on both types in Table 1.
The table shows how often price drops to A, B, and C for the strict and loose interpretations (the "measure rule" lines). The numbers are similar with the strict interpretation outperforming the loose variation.
Failures differed slightly. The break even failure rate represents moves down from D that fail to drop at least 5% before rising. This is different than the 6% that fail to drop to B.
The average length varied greatly between the two types, but the median was closer. I used the median length as the separator between short and long.
Long Gartleys outperformed short ones but only in the strict version. The minus sign means price dropped (as in the average drop from D to the ultimate low was 18% for short patterns,
strict variation).
Bearish Gartley Trading Example
Let's take a look at a trading example.
I show the Gartley on the daily chart of Global Industries. X is at 8.04, A is at 6.11, B is at 7.31, C is 6.40 and D is 7.69.
The AB retrace of XA is 62%. The BC/AB drop is 76%, near the top of the range between 61.8% and 78.6%. The CD/BC move is 142%, about midway in the 127% to 161.8% range.
After D, the stock drops until reaching the "ultimate low" (the lowest low before price rises 20%), shown at E.
The pattern showed a drop of 33% (7.69 to 5.19).
Would you be able to spot this as a Gartley if the labels were not attached?
 Thomas Bulkowski
Written by and copyright © 20052017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information.
NSA motto: "In God we trust. All others we monitor."
