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49 This chart is a good example to study because the AB=CD pattems have nice symmetry. The price legs are generally close in duration. Each leg of the large AB=CD was approximately three months, while the legs of the smaller ab==cd were slightly more than a month. When these pattems form repetitively and are this distinct, they provide fantastic set-ups. In my opinion, the larger AB=CD is a more significant pattem than the smaller ab=cd. But, it is very common for a reversal to occur at the completion point of the smaller ab=cd pattem. So, I recommend that you study the entire harmonic area, realizing the potential for a significant reversal. AB=CD Summary On a final note about the AB=CD, as I have said before, it took me a long time to think in an AB=CD framework. I knew that the pattem worked, yet time and time again I jumped in long before an AB=CD was complete, fearing that I would "miss ouf on huge profits because "I knew" that I was going to make money. It was not until I lost enough money that I literally had to train myself to execute within the AB=CD framework. One reason that it took me a long time to respect the AB=CD is that it seemed too simplistic. I wondered: how could stocks trade in such a fashion? I do not have an answer for why the AB=CD is a valid signal, other than I have witnessed hundreds, if not thousands, of charts that have reversed after completing the pattem. I believe that this is the most important pattem in this book. If you can master one trading technique from this book, it must be the AB=CD pattem. I have not only made this pattem a rule, but its one of my fundamental trading "laws." I am serious! This simple framework will make you a very successful trader. The pattem seems very basic but it can be very difficult to execute properly. When you initially utilize this pattem, it is important to write the pattem on the stock chart that you want to trade. For example, if you want to sell, write the pattem on the chart and draw an arrow exactiy at point D. Next to the arrow, write: "Sell at D!" It is important to do such reinforcement exercises to train yourself to execute correctly because this framework will truly make you "buy low and sell high."
Gartley 222 The Gartley 222 is a very powerful, multi-dimensional pattem. It is called a Gartley 222 because it is found in H.M. Gartleys book, Profits in the Stock Market, on page 222. I will simply refer to this pattern as the "Gartley." The important features of the Gartley are the specific location of the various points: X,A,B,C and D. The X-A leg is the largest price move in the pattem. It is followed by a counter move of A to B. The first leg, A to B, sets up the potential AB=CD, which is cmcial to the completion of the pattem and to the indication of the reversal zone. After a brief and smaller to retracement, the to D leg is established. A precise calculation of the AB=CD will provide a significant potential reversal point. Ideal Gartley The ideal Gartley set-up will be defined by specific Fibonacci retracements. One of the most important numbers in the pattem is the completion of point D at the .786 of XA. Although the price action might exceed this number slightly, it should not exceed point X. The pattem is a nice set-up, especially with the convergence of an AB=CD.
Another important point in the pattem is the .618 retracement of the XAleg. The AB leg should reverse very close to this retracement. The .618 retracement at point is critical because it will establish another Fibonacci projection - usually a 1.27 of - in the potential reversal zone at point D. Bullish Gartley In the bullish Gartley, it is important to note that certain points in the pattem must be located properly to ensure a valid signal. bullish gartley buy at point d! Point X is below all of the points in the pattem. Point A must be above point C, and point D must complete below point B. The most critical aspect for a valid reversal is that point D must hold above point X. Furthermore, the pattem should possess a clear AB=CD pattem.
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