The Gartley pattern, in the context of the original and modern versions, is simply a trend move
followed by a countertrend move. According to Elliott Wave theory, the counter trend move is
made up of overlapping waves, unlike the initial impulse that precedes it. This countertrend
move is what R.N. Elliott identified as the most common corrective wave structure. He referred
to it as the “Simple ABC Zigzag Correction.” What does this look like?
A simple ABC correction is made up of three waves. The first wave labeled A is the initial
counter trend leg that follows and impulsive trend move. The second wave labeled B is a
retracement of the first leg, however this retracement will not exceed the beginning of the ABC
correction. The third leg will take out the end of the wave A and will terminate at Fibonacci
extension level of 100% (where the price range of wave A and the price range of wave C are
equal to each other.) In the original Gartley material, there is no discussion of this type of
correction. This is all that Gartley said, “And when a minor decline, after cancelling a third to a
half of the preceding minor advance (B-C) comes to a halt, with volume drying up again, a real
opportunity is presented to buy stocks, with a stop under the previous low.”
Some Gartley traders have created additional unnecessary rules in regard to the “minor
decline” that Gartley referenced above. Does the end of wave A have to terminate at the 61.8%
Fibonacci retracement? Does the end of wave B have to complete on a Fibonacci retracement?
In my opinion the answer is no. The most important modern improvement of the Gartley
pattern in regard to the corrective section of the pattern is the equality of the price range of
wave a and wave c. This symmetry of the two waves can be seen in many other classical
technical patterns such as flags, pennants and triangles. After a breakout from these patterns,
the market will often run about the same length as the wave that precedes the consolidation
part of the pattern.
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