Analys från DailyFX
A Credible Gartley Pattern in EUR/GBP
Talking Points:
- 2 Conditions That Qualify the Pattern
- How Best to Trade This Set-up
- A Gartley-Inspired “Trade of the Year”
One reason why the Gartley pattern is so famous, yet is so rarely traded, is likely because of the conditions that must be fulfilled in order to qualify the pattern. For those interested, Tyler Yell’s article provides the full exposition and list of requirements. In practice, though, I’ve found that only the first two conditions need be fulfilled to make it a credible pattern.
Guest Commentary: 2 Conditions That Validate a Gartley Pattern
Readers may note that the second condition differs slightly from the one referenced in the previous article. The difference, however, is merely one of preference and a result of different traders’ experiences in working with the same condition.
It can prove incredibly challenging to constantly scan markets and multiple time frames for this combination of Fibonacci conditions, although I am aware of at least one full-time trader who does just that.
Purists will be glad to hear that the EURGBP trade we’ll evaluate today is one of the rare candidates that potentially fulfills all the traditional conditions on the daily chart.
Guest Commentary: Gartley Pattern on EUR/GBP Daily Chart
Only the two conditions specified are shown, but if readers care to check the others, they will find that they are present as well. In setting up this trade, it is worth noting that the daily chart is actually in a choppy downtrend, which, when viewed from the weekly chart, is actually the flag portion of a large bullish pennant.
Guest Commentary: Bullish Pennant on EUR/GBP Weekly Chart
For those who wish to set up a swing trade, the next step is fairly straightforward. The entry could be developed using the four-hour chart (see below) on signs of bullish reversal divergence, pin bars, or bullish engulfing patterns. As usual, two or three attempts to get in on the trend may apply, although this pattern looks more promising than most when studying the four-hour chart.
Guest Commentary: 2 Key Support Zones for EUR/GBP
An inconspicuous line of support comes into play on the four-hour chart, and price is already appearing to react off of it. This level of support, combined with a horizontal resistance-turned-support to the left of the chart, provides the top of a smaller support zone. The bottom is derived from the congestion area to the left on the chart.
On the hourly chart (not shown), traders can use 0.8289-0.8318 as the key zone of support, applying the same triggers and requirements (including the two-or-three-tries clause) described previously.
Four-hour-chart traders are advised to respect the Gartley pattern, however, and should instead wait for the larger pattern to develop at the larger support zone, which is 0.8251-0.8290.
Clearly, the white patch where the analysis overlaps becomes an area of intense interest. This zone is 0.8289-0.8298, a very narrow area that will readily cater to precision traders.
Alas, no one knows which scenario will develop until after the fact, and, of course, like any other, Gartley patterns can fail as well.
For further proof of why the Gartley pattern can be so significant, it is worth studying what was the ”trade of the year” in 2009, a long set-up in GBPUSD, which is shown below for educational purposes.
Guest Commentary: A Gartley-Inspired “Trade of the Year”
It’s important to remember that patterns will often not yield such favorable results, but it’s also encouraging to know that at least there’s that possibility!
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.
Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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