# Understanding Gartley Pattern: A Guide to Harmonic Chart Patterns

## What Is the Gartley Pattern?

The Gartley pattern is a widely recognized harmonic chart pattern that leverages [Fibonacci](https://www.investopedia.com/terms/f/fibonaccilines.asp) numbers and ratios to assist traders in pinpointing potential market highs and lows. Originating from H.M. Gartley’s foundational work in 1935, this pattern has become the most commonly used due to its effectiveness in forecasting price movements.

By integrating Fibonacci ratios, the Gartley pattern provides insights into market trends, offering traders a strategic edge when combined with technical analysis.

### Key Takeaways

*   The Gartley pattern is the most common harmonic chart pattern used to identify reaction highs and lows in financial markets.
*   It is based on Fibonacci numbers and ratios, which help traders predict price movements by forming geometric structures.
*   Traders often combine the Gartley pattern with other chart patterns or technical indicators for more accurate analysis.
*   The pattern was originally introduced by H.M. Gartley in 1935 and later refined with Fibonacci ratios by Larry Pesavento.
*   The Gartley pattern offers specific insights into both the timing and magnitude of price movements, providing actionable information for traders.

## Understanding Gartley Patterns in Trading

The [Gartley pattern](https://www.investopedia.com/articles/trading/05/040405.asp) is the most common harmonic chart pattern. Harmonic patterns assume that Fibonacci sequences help create geometric structures like [breakouts](https://www.investopedia.com/terms/b/breakout.asp) and [retracements](https://www.investopedia.com/terms/r/retracement.asp) in prices. The Fibonacci ratio is common in nature and has become a popular area of focus among [technical analysts](https://www.investopedia.com/terms/t/technical-analyst.asp) who use tools like Fibonacci retracements, extensions, fans, clusters, and time zones.

Many technical analysts use the Gartley pattern along with other chart patterns or [technical indicators](https://www.investopedia.com/terms/t/technicalindicator.asp). The pattern offers a big-picture view of future price movements, while traders make short-term trades following the trend. Traders also use breakout and breakdown targets as [support](https://www.investopedia.com/terms/s/support.asp) and [resistance](https://www.investopedia.com/terms/r/resistance.asp) levels.

The main benefit of these chart patterns is they offer insights into both the timing and size of price movements.

Traders also use [Elliott Waves](https://www.investopedia.com/terms/e/elliottwavetheory.asp), predict futures [trends](https://www.investopedia.com/terms/t/trend.asp) by analyzing the appearance and relationship of price movements.

## Identifying and Analyzing Gartley Patterns

Here's how the Gartley pattern is structured:

![Gartley Pattern](https://www.investopedia.com/thmb/3pnqUgyOinK2ThBhO-Cg0zkiw_Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GartleyPattern-5541ce000da34023a20348e5681bbffb.png)

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The Gartley pattern above shows an [uptrend](https://www.investopedia.com/terms/u/uptrend.asp) from point 0 to point 1 with a price [reversal](https://www.investopedia.com/terms/r/reversal.asp) at point 1. Using Fibonacci ratios, the retracement between point 0 and point 2 should be 61.8%. At point 2, the price reverses again toward point 3, which should be a 38.2% retracement from point 1. At point 3, the price reverses to point 4. At point 4, the pattern is complete and buy signals are generated with an upside target that matches point 3, point 1, and a 161.8% increase from point 1 as the final price target. Oftentimes, point 0 is used as a [stop loss](https://www.investopedia.com/terms/s/stop-lossorder.asp) level for the overall trade. These Fibonacci levels do not need to be exact, but the closer they are, the more reliable the pattern.

The bearish version of the Gartley pattern is simply the inverse of the bullish pattern and predicts a bearish [downtrend](https://www.investopedia.com/terms/d/downtrend.asp) with several price targets when the pattern reaches completion by the fourth point.

## Real-Life Example: Gartley Pattern in Action

Here's an example of a Gartley pattern appearing in the AUD/USD currency pair:

![AUD/USD Chart](https://www.investopedia.com/thmb/UIArlcNd-JL_Cn-K42a_8NEITaI=/982x0/filters:no_upscale():max_bytes(150000):strip_icc()/audusd-chart-02152019-5c66d7e0c9e77c0001e75c9c.png)

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In the chart above, the Gartley pattern is followed by a bullish move higher. Point X, or 0.70550 could be used as a stop-loss point for the trade. The take-profit point could be set at Point C, or about 0.71300.

## The Bottom Line

The Gartley pattern is a widely-used harmonic chart pattern that leverages Fibonacci numbers and ratios to help traders identify potential reaction highs and lows in the market. As the most common harmonic pattern, it provides specific insights into both the timing and magnitude of price movements. Traders often utilize the Gartley pattern alongside other technical analysis tools to reinforce predictions and set stop-loss and take-profit targets.

Understanding this pattern can aid traders in executing informed decisions and enhancing their overall trading strategy.

> **Article Sources**
>
> 1.  H.M. Gartley. "[Profits in the Stock Market](https://books.google.com/books?id=sZ33snOTpTYC)." Health Research Books, 1935.