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Chapter 17, Part III - Gartley's Patterns. Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Trading Gartley “222” pattern continued

    The second way to enter is a bit conservative, that could lead to skipping some trades, or even getting a worse entry that from the first one. This method is based on getting some confirmation from the market that the AB-CD move has completed. Chart #1 shows one of the possible ways how market could do that. Precisely around 1.0 AB-CD target, the market has formed a Bearish engulfing pattern that gives us more confidence and assume that probability is on our side. But here you will enter on a worse price. So the choice is up to you how to act. This links to your personality also, as with other aspects.

    It doesn’t matter how, but let’s assume that we intend to enter short. The first question that we have to answer is where to place stop-loss order. I strongly recommend think about the stop order prior to thinking about entry level. Because there is a risk, that since you’ve decide to enter you will try to force the stop level so, that it will be in a row with your risk management. Here you may deceive yourself, because in this case your stop could be illogical and just driven to your wishes but not by common sense.


    Chart #1 | 60-min EUR/USD and Gartley’s “222” pattern
    [​IMG]

    Here we have three possibilities to place stop loss order:

    1. Based on confirmation pattern around AB-CD target;

    2. Based on overall “222” pattern;

    3. Based on harmonic swing value.

    Only the second way is suitable to trade this pattern absolutely flawlessly. And it assumes placing stop beyond the X-A swing. In our case it’s above 1.4413 level. This stop placement comes from the major rule that states – “D point can’t stay beyond X-A swing”. If that happens the pattern is treated as failed one. That’s why placing stop beyond the X-point makes it reasonable. If market will trigger it, then it will cancel the “222” pattern.

    Pipruit: I suppose that’s enough, why we need other ways of stop placement at all?​

    Commander in Pips: The major problem with such stop placement is that distance between D point and X point could be very significant. Imagine that you trade this pattern on weekly or even monthly time frames.

    Also this could happen due to a shallow AB-CD retracement inside X-A swing. Say, only till 0.618 or even 0.5 level. That’s why we should have some reserve ways to place stops.

    On chart #1, for instance, we can apply the first way that is based on some confirmation pattern, since this pattern has appeared at D point. Where we should place stop for bearish engulfing, a?

    Pipruit: Somewhere above the high of this pattern.​

    Commander in Pips: That’s right. In our example it has worked perfectly. Although you have a worse entry, you also have a tighter stop.

    And the third way to place stop – use harmonic swing value. I will not write a lot about it – the principle is the same as with AB-CD pattern. Also you can use money stop, but in this case you have to be ready to re-enter and may be not just one time. Because while market will stand below X point, “222” pattern will hold valid and your stop could be triggered just by extension of the CD leg, that lasts for 1.272 instead of just 1.0, for instance.

    Pipruit: I see. And what about targets?​
     
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 12, 2016
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