With precious little interesting to do in lockdown London – other than going for walks and enjoying the beautiful sunshine – I decided to attack paperwork at home. Not the utility bills, insurance policies and income tax, but the piles of things generated over many years as a journalist, author and keen technical analyst. You can tell I, like so many others, have not exactly embraced paperless work.
I consider my very long term charts – of markets, economic trends, demographics and whatever – like gold dust. However, I can see that the ink on some is fading and that eventually the paper will probably crumble and turn to dust too. Over the years these have been adequately filed and needed little rearrangement. More recent finds, currently in the pending box, were sorted and added to these.
Harder to deal with are the random odds and sods, most of which should probably be binned. Then along comes a surprise, which pushed me into writing this week’s blog; an article co-written by Leslie Jouflas and Larry Pesavento for The Trader’s Journal in February 2007 about the history of the Gartley pattern. I hadn’t heard of it; checked my ancient John Murphy book and he didn’t mention it; but Martin Pring did in his 2002 ‘Technical Analysis Explained’.
A classic Harmonic chart pattern, known as ‘222’ because it featured on this page in H. M. Gartley’s huge tome ‘Profits in the Stock Market’ published in 1935. It’s a 3-wave correction where AB=CD and X is the start of the swing, be it bearish or bullish. Gartley then added the mathematical relationships of Sacred Geometry – using one third and two thirds retracement – an aspect subsequently refined to Fibonacci ratios including the 78.6 per cent. This pattern recognition developed into what is known as Swing Trading, with its entry and exit points. Empirically tested and back-tested on several time frames over many years up to 1933, Gartley claims the pattern was correct about 70 per cent of the time.
Three things only will invalidate the pattern:
1) The end of the D wave cannot exceed X
2) The end of the B wave cannot exceed X
3) The end of the C wave cannot exceed A
Note that the pattern can be embedded into one of a higher degree.
Gartley also favoured simple moving average crossovers, claiming the 25-day one plotted 3 days ahead was the best.
Link to images of the pattern: https://bit.ly/3gdcBvg