Written by and copyright © 20052017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
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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 bullish Gartley, the variation with an upward breakout.
Let me also say that I have not read Gartley's book, so details of this pattern are based on Internet sources.

Bullish Gartley

Important Results for Bullish Gartley
Overall performance rank (1 is best): Not ranked
Break even failure rate: 10%
Average rise: 40%
Throwback rate: Not studied
Percentage meeting price target: Up to 97% (97% reach point B)
The above numbers are based on just 115 perfect trades in both bull and bear markets. See the glossary for definitions.


Bullish 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 down. The A and C tops look like an ugly double top, too.
Having so many rules makes the pattern rare. Here are the traditional identification guidelines for the pattern.
Characteristic  Discussion 
XA  Price rises from X (see figure on the right, not drawn to scale) to peak at A. This is typically a large upward move to accommodate the retraces that follow. 
AB  Price retraces from the peak A to valley B about 61.8% of the XA move. 
BC  After bottoming at B, price climbs to C. The BC move retraces 61.8% or 78.6% of the AB drop. For testing, I chose to interpret this as a range of acceptable values. 
CD  The final leg of the pattern sees price drop from peak C to the valley at 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 drops below X on the way to finding D, then the pattern should be ignored. 

The Bullish Gartley Retraces

Bullish Gartley Trading Tips
Trading Tactic  Explanation 
Buy  Once price turns at D, buy. 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 below 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 valley B and peak 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 rise from the low at D to either a 20% trend change (price drops 20% from a peak) or drops below X.
I found that 3% of the patterns I looked at failed to rise up to B before dropping below X. The other 97% reached B or continued higher. I did not measure those that failed to
turn at D (they kept on dropping).

The Measure Rule

Sixtyfour percent climbed up to peak C. Just over half, 52%, reached or exceeded the top of the Gartley, at A.
Notice that most of the patterns stop in what's called the corrective phase of the measured move down (BC). This is a congestion region that often stops price. See
"Completion" in the trading tactics table of the measured move down for more information.
Bullish Gartley Testing Methodology
To test the performance of the bullish 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 108 stocks with Gartleys (but I used over 1,000 stocks in the search). That gave me 115 individual patterns.
I did not split performance into bull or bear markets.
Bullish Gartley Performance Statistics
Table 1: Performance of Strict and Loose Gartley Patterns
Measure  Strict  Loose 
Measure rule: reaches A  52%  43% 
Measure rule: reaches B  97%  97% 
Measure rule: reaches C  64%  53% 
Break even failures  10%  12% 
Average length (days):  117  71 
Median length (days)  76  60 
Short pattern performance  20%  22% 
Long pattern performance  44%  24% 
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 rises 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 up from D that fail to climb at least 5% before plunging. This is different than the 3% that fail to climb 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.
Bullish Gartley Trading Example
Let's take a look at a trading example.
I show the Gartley on the daily chart of Abaxis. X is at 31, A is at 40.60, B is at 34.70, C is 38.60 and D is 33.30.
The AB retrace of XA is 62%. The BC/AB climb is 67%, about mid range between 61.8% and 78.6%. The CD/BC move is 135%, toward the low end of the 127% to 161.8% range.
After D, the stock moves up slowly before running out of data. In other words, the "ultimate high" (see the glossary) has not been found yet.
The gain so far has peaked at 45% above the low at D.
Notice how choppy the Gartley appears when compared to the idealized figure at the top of this article. That's typical for long patterns.
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.
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