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81

The Gartley pattem was very clear. The potential reversal zone consisted of: 1. .786XA at 68; 2. AB=CD at 69 13/16; 3. 1.27BC at 69 3/4. The prior gap converged nicely in this area, which was filled at 68 1/4. With all of these numbers in such a tight area, the probability for a reversal was quite high.

POTENTIAL REVERSAL ZONE

.786 D

PRIOR GAP

APPLIED MATERIALS (AMAT): DAILY BEARISH GARTLEY WITH PRIOR GAP

© BigChartscom

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ENTIAL REVERSAL ZONE

70 68 6& 64 62 60 58 56

20 15 10 5

tiar

Price gaps are significant because they mark a place in the history of a stocks price action, where mass perception of has changed in a dramatic fashion. This price action is especially significant when a gap is followed by a wide price range and/or tail close. So, when an unfilled gap is in the same price area as a potential reversal zone, it is important to recognize this as an especially significant opportunity.

The next chart also illustrates the importance of prior gaps in a potential reversal zone. Broadcast.com completed a very bullish Gartley



that possessed a very harmonic area. The stock possessed five harmonic calculations and prior gap in this area.

PRIOR GAP

BR0ADCAST.COM (BCST): DAILY

Volume

®Big,Chirts.Mm

BULLISH GARTLEY WITH PRIOR GAP IN TOTENTUL REVERSAL ZONE

llll I lllllllllllllllllilli,,IIIIHllllliiiillll.lll,iilllill...

flar

It has been my experience that prior price gaps generate some type of bounce. In combination with a potential reversal zone, prior gaps can provide excellent trading opportunities. The price action can be extreme in these areas, as reversals frequently occur sharply after filling the prior gap. But, these opportunities are especially significant.



Volume

Volume can often provide a clear signal of potential reversals, especially when a stock hits a potential reversal zone. The most important concept of volume in the potential reversal zone is to focus on an extreme. When I see a huge volume spike, either on the downside or upside, I must assume that the stock has become exhausted. I state this with one condition: the reversal must occur very close to that exhaustion point. Although the evidence of a volume spike in the potential reversal zone does not always yield a reversal, its existence adds to the probability of a change in trend. It is important to be aware of such phenomenon, as greater indication of a reversal. Lets look at an example.

The following chart of Becton-Dickenson clearly illustrates how an extreme volume spike can signal a potential reversal at hand. This set-up was very harmonic, as it possessed two Butterfly pattems, two AB=CD pattems, and five harmonic calculations in the potential reversal zone.

BECTON-DICKENSON (BDX): DAILY

9 BULLISH 1.618 BUTTERFLY WITE VOLUME SPIKE li

Big.Charts.oom

VOLUME-

EXHAUSTION

Oc-t NoM Ue-e Feb Hai~ 1~



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