Amongst the harmonic trading patterns, the Gartley Pattern is one of the most reliable, and when they are confirmed, can give substantial profits. The Gartley pattern brings in a mix of trading psychology and Fibonacci retracement techniques. The psychological aspect is related to how markets actually work. All high volume trading markets are made up of thousands of individuals who, on mass, act as a herd more often than not. Herd behaviour results in trending price action. If all traders acted independently, then trends would not be able to form as price action would then become random and determining where price is going next would be almost impossible. It’s this herd instinct that drives traders to form the likes of the Gartley pattern. It is made up of several phases:
Price moves down to form a new low
A strong rally develops
The rally falters and price falls
Another rally starts off
The rally again fails and price falls yet again
Another rally starts and this one follows through
The Gartley pattern is now complete
Each of these rallies and counter trend movements is driven by traders who are unsure of what will happen next. Firstly they become very bullish with the first strong rally that is pushed higher as more traders come on board as the herd instinct takes off. The rally falters as those who got in on the rally early take some profits and the weaker traders who got in very late, panic and jump out of their trades, often with a loss, as they start to see the herd selling. This process continues with successive rallies and correction until price retraces almost all the first big rally. It is then, just when the majority of traders expect the original down trend to continue, that the new Gartley pattern trend takes off.
Read more here http://www.clickevents.co.uk/fibonacciretracement.htm
George Hallmey is a Forex day trader and he has reviewed Forex trading systems over many years. You can find out more about his findings, click here – Traders Class
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