Gartley Trader

By Ross Beck, FCSI

For the week of March 9 – March 13, 2009
The Gartley Trader is a weekly publication that focuses on high probability trade set ups in the U.S. Futures market. The Gartley Trader is a purely technical newsletter with a focus on pattern recognition, Market Geometry and Fibonacci ratio analysis. As such there will be no fundamental bias as to whether the trade set ups discussed should be long or short. It will be left up to the individual to filter these setups with additional fundamental analysis. In addition to the set ups, all examples will use Single Entry Multiple Exits and Scale In Single Out advanced money management techniques. For further information, go to www.gartleytrader.com

Weekly Summary
Exchange
CME CBOT

Contract
AD W

Month
June June

Setup
Bull Gartley Bull Gartley

Price
.6300 510

Order
Buy Buy

Date
New New

“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

Trade Setups of the Week CME Australian Dollar

Trade Set Up
We have a bullish Gartley pattern setting up in June AD and spot AUD/USD on the 60 minute chart. The pattern is based on a 78.6% Fibonacci retracement and a simple ABC zigzag will be complete at 62.99. If the AD declines this week to .6300, the bullish Gartly pattern will be complete and we will want to enter with limit orders on the long side.

“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

Entry/Exit Strategies
Our two favorite methods of entering/exiting our trade set ups are with SEME (single entry, multiple exits) and SISO (scale in, single out). SEME dictates that we enter with a minimum of three contracts and exit the position in thirds. The SISO strategy is a pure martingale and will double the position size at specified intervals if the position moves against us. Once the position moves in our favor by a single interval, we will liquidate all open positions. The SISO strategy is VERY AGGRESSIVE but has the highest probability of winning.

Single Entry Multiple Exits
Entry Order - Buy three contracts at .6300 with limit orders. Enter the protective sell stop on all three contracts at .6280. Set the first profit target to sell one contract on a limit at .6310. If the first target is hit - Move the protective sell stop on the remaining two contracts to .6290 and set the second profit target to sell one contract at .6320. If second target hit - Move the stop on the remaining open position to .6300 and use a three bar trailing stop on the daily chart as long as the three bar trailing stop is above .6300 Three Bar Trailing Stop - The three bar trailing stop in the above example would put a stop below the lowest low of the previous three bars (ignoring inside bars) on a daily chart.

Scale In Single Out (SISO)
Entry Order - Buy one contract at .6300 limit and set the profit target at .6310 to sell. If the market declines to .6280 - Buy two contracts and place limit orders to sell three contracts at .6300 If market declines to .6260 - Buy four contracts and place limit orders to sell seven contracts at .6280 If market declines to .6240 - PTP! (Pull the plug)

Entry strategies like the Gartley Pattern are only one part of a trading strategy. The most important aspect of trading is the exit. In addition to the strategies described above, Majestic Peak Trading offers a number of different money management techniques to empower traders. For more information on expert exit strategies, go to www.majesticpeaktrading.com
“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

Trade Setups for the Week CBOT June Wheat

Trade Set Up
We have a Bullish Gartley in the June contract of Wheat on the daily chart. The pattern is based on a 78.6% Fibonacci retracement on the impulsive trend move up from the December 5th low at 471, up to the January 7th high at 646. In addition, a simple ABC correction against the up trend will be complete at 508.5. If Wheat declines this week to 510, the bullish Gartley might be complete and we may choose to enter with limit orders on the long side.

“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

Entry/Exit Strategies

Single Entry Multiple Exits
Entry Order – Buy three contracts at 510 with limit orders. Enter the protective buy stop on all three contracts at 470. Set the first profit target to sell one contract on a limit at 530. If the first target is hit - Move the protective sell stop on the remaining two contracts to 490 and set the second profit target to sell one contract at 550 If second target hit - Move the stop on the remaining open position to 510 and use a three bar trailing stop on the weekly chart as long as the three bar trailing stop is above 510. Three Bar Trailing Stop - The three bar trailing stop in the above example would put a stop below the lowest low of the previous three bars (ignoring inside bars) on a weekly chart.

Scale In Single Out (SISO)
Entry Order - Buy one contract at 510 limit and set the profit target at 550 to sell. If the market declines to 470 - Buy two contracts and place limit orders to sell three contracts at 510 If market declines to 430 - Buy four contracts and place limit orders to sell seven contracts at 470 If market declines to 390 - PTP! (Pull the plug)

Entry strategies like the Gartley Pattern are only one part of a trading strategy. The most important aspect of trading is the exit. In addition to the strategies described above, Majestic Peak Trading offers a number of different money management techniques to empower traders. For more information on expert exit strategies, go to www.majesticpeaktrading.com

“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

Weekly Technical Analysis Review
The Gartley Pattern – Part 2 In the previous article, we looked at the background of the man who wrote the book, “Profits in the Stock Market,” H.M. Gartley. We will consider the further evolution of what today is simply referred to as the Gartley Pattern. I spoke on the phone last weekend with the man who reintroduced the world to the Gartley pattern, legendary trader and author, Larry Pesavento. I asked him to describe the events that led up to his discovery of the Gartley. He told me that he came across the pattern when he was working for Conti Commodities in Los Angeles in the 1970’s. The Conti office just happened to be four blocks away from Don Mack’s Investment Center Bookstore in West Los Angeles. Don Mack gave Larry full access to the Investment Center Bookstore library. Larry asked Don which book he should read as Don had an immense selection of books. Don didn’t hesitate and told Larry to read “Profits in the Stock Market” by H.M. Gartley. After spending some time with master market geometer, Bryce Gilmore from Australia, Larry realized the importance of the Fibonacci ratios and started applying the 61.8% Fibonacci retracement to the Gartley Pattern. Larry started to filter his Gartley Pattern trade setups by waiting for a 61.8% retracement to be complete at the end of the pattern that Gartley illustrated in his book. Larry noticed that this added criterion enhanced the probability of the Gartley Pattern. After speaking with Larry, it appears that Bryce Gilmore was also the individual who let him know that he should use the square root of the Fibonacci ratio 618. This ratio is .786 and thereafter Larry started to use the 78.6% retracement as a filter to his Gartley Patterns in addition to the popular 61.8% retracement discussed by R.N. Elliott. For those of you who are interested, the number 786 is popular for reasons other than trading, especially in the Middle East. The first verse of the “Quran” it states, “In the name of Allah, the Beneficent, the Merciful”. When we assign numerical values to the Arabic letters, the number that comes from this first verse is 786! One of Larry Pesavento’s students, Scott Carney, decided to do some further work on the Gartley Pattern in an effort to improve the reliability of the pattern. Scott felt that each leg in a Gartley Pattern should have a Fibonacci relationship to the leg immediately preceding it. The caveat to these criteria, of course, is that these relationships cannot be exact. If we were to wait for a Gartley Pattern with these exact parameters, we would be waiting a long time! Therefore, Scott assigned a certain tolerance percentage to each of the legs in his version of the Gartley Pattern.
“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

In part 3 of this series of articles, we will continue to discuss the further evolution of what is today known by most traders as the “Gartley Pattern.” Ross Beck, FCSI

To learn more about Ross Beck, FCSI or the Gartley Pattern, go to www.gartleytrader.com

“Gartley Trader” is written by Ross Beck, FCSI, All rights reserved. Charting by Dynamic Trader. www.gartleytrader.com

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