The Butterfly & Gartley Method

This one and it’s offshoots are in the generic trading community and you’ve more than likely come across it already .

You may even use it, you may have seen it and discounted it and you may have tried it and given up – Let me show you how to use it properly – The Hovis Trader way.

In the 1930’s a book was written by a man called Gartley – on page 222 he showed a trading set-up that has now become known as the Gartley 222 method – It also has variations to it.

I am certain the web is full of detail on this method, so I’m not going to explain all the traits of the set-up, if you want to that is up to YOU to do – link at the end.

Depending upon the price activity and form of the set-up it can be known as a BAT, CRAB, BUTTERFLY or straight-forward Gartley 222 pattern

The purpose of this post is to show you how I use this set-up method in my trading, as It’s not as the trading method was created (although I do trade the BULLISH trades when I see them)

Now the whole point of the set-up is to identify the ENDING part/zone and then prepare to take trades in the OPPOSITE direction (As usual Charts will detail content), to catch the longer term trade reversal.

The problem is this does not always happen! As this is trading, it does not happen 100% of the time I’m afraid!

However, if the set-up sets up, then the market offers you a chance of playing the game in the run-up to the target zone! THIS is my PREFERRED way to trade these BEFORE price action reaches the target zone!  I did say at the start that I’ve put my own mark on this method!

There’s time when I’ve reviewed a market, decided to trade it and THEN I’ve noticed that it’s in a Gartley/Butterfly position!  When you trade pullbacks this will happen as a natural process of trading pullbacks!

Now I know in the charts below some of the set-ups aren’t exact proper Gartley and Butterfly methods – I use my knowledge to trade when I see similar formations – I don’t work strictly to the exact methods – If this is new to you I would suggest that you do stick to the exact methods.

I only trade long, so I only take trades on potential BEARISH Gartley’s and I get in at point B and point C for Butterflies (see chart below) and point c for BULLISH Gartley’s

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50

 

http://harmonictrader.com/blog/2013/08/03/gartley/

Now If you’ve invested £20 into Robert Miners book “high probability trading methods” you will notice that these methods ALL fit within his fib price ratios for an Elliott Wave ABC corrective pattern – so you could just use Miners ratios and the ABC and you WILL pick these set-ups up naturally – keep it as simple as possible.

For the sake of £20 – I would urge you to get the book, read it, put it away for a few weeks, read it again, put it away and 1 week later get it out again, read it and test the methods on the market – thinking all the time about market form and reactions – If you focus on Elliott wave exactness then you will drive yourself insane, just apply the basic methods and you’ll win.  The methods in that book allow you to WIN even when WRONG on the formation forming!  In my opinion the book and Ganns basic methods are the real holy grail in the markets

I don’t care whether it’s a Bat, Gartley, Butterfly, Shark or a dog – all I’m bothered about is, Is it a high probability trading opportunity that if it works out as expected then makes me 3R+

Do not get hung up on these fitting perfectly – If you’re trading LONG – then you want to get in at the lows and see if the move works out as expected.

Disclosure:  I do refine my trades to increase the probability, which is NOT shown on the charts above, but if you own Miners book – HPTM – then you’ll of read it in there. This blog is for INFORMATION purposes only – trade at your OWN risk

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You were Warned well inadvance

I posted this in February 2014, I’d read it again and then look at what’s been happening since September:

https://thehovistrader.wordpress.com/2014/02/20/now-is-the-time-to-beware/

Some basic Time Cycle Analysis

Here’s a few charts looking at Time Cycle’s that are potentially turning points – I have no Idea (nor does anybody else) whether these will work or whether they will be significant turning points – All I know is that is what the maths is saying.

Chart 1:

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The Dynamic Time Projection within my  software and displayed in the chart above shows a few high probability dates that could potentially call a high – These calcs have been done using Fibonacci numbers/projections from the swings you can see in the chart.

The expectation is IF the market abides by Fib numbers and Fib time – then these projections ought to catch another market swing

My own personal use of this has not been fantastic – I get too caught up in it being specific! Anyway based on Fib Time projections these are the approx. dates.

Chart 2:

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In chart 2 we have my personal favourite Time Cycle projections – I’ve analysed all the market swings displayed in the chart, and projected the most likely time periods for the next high as displayed in the Indicator window on the chart.

Again – no one in the world can 100% say whether it’s a temporary high or the top – my experience just tells me that can’t be done.

What the chart is telling me is, IF the market is following the same swing cycles as are displayed in the chart and it’s followed of the past then the most likely time (displayed & shown) for a high is calculated.  (End Nov 2013 – Jan 2014)

Chart 3:

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Last chart – Chart 3 – rather than using TIME, I’ve projected PRICE

Based on previous market swings over the past year or so – the area displayed on the chart  is a high probability target zone and especially the shaded section – price is there NOW!

I will make a note to try and post this type of analysis once per month on the S&P500 with BOTH Time and Price projections

Did W.D. Gann use Fibonacci?

It always surprises me that people just look for the short-cuts in life, the number of times my W.D. Gann page has been viewed and especially when someone puts into a search engine the search term: “did Gann use Fibonacci” or terms to that effect is frightening.

If you are one of those people, past or present, then you join the ranks of myself, as I have asked that very question and from my findings I’ve never found a satisfactory answer – even from the Gann “Experts”!  I must add that I’ve not looked at every Gann expert out there as after a while you lose the will to live after sifting through their work only to realise that most of it could be disclosed in 10 pages or less and the rest of the books/course is just padded out rhetoric.

So Did Gann use Fibonacci?  The answer is not that simple as a yes/no answer I’m afraid.

Firstly, there is no direct evidence that Gann used Fibonacci price levels, Gann used his own division of price ranges into 3rds and 8ths – some of these levels are close to Fibonacci levels but not exact matches.

Now the next question you should be asking is did Gann know of and understand Fibonacci?

The answer to that I am almost certain of that he DID – If you read Gann’s recommended reading list then in certain publications reference to Fibonacci and the golden ratio are mentioned and in Gann’s article on the Human Body reference to this also can be construed but also another different meaning too! Confused!

In my studies of Gann there is no direct reference to him using Fibonacci or the Golden Mean, he was probably more than aware of it as I’m pretty sure Gann studied everything to do with mathematics, but he opted NOT to use it directly opting for divisions in time and price of 3rds and 8ths and 16ths etc.

His most famous price division is his 50% level – even Fibonacci experts today use the 50% level – 50% is NOT and never has been a Fibonacci number!  If you do not own any of Gann’s works then it is important to know that he wrote an entire course on resistant levels and focused heavily on the 50% level throughout his works.

I am fairly certain that if Gann had discovered Fibonacci levels then he would not of written so extensively about his other price range divisions as he did.

The message here, and I’ve looked into it for my own research in the past, is that Yes Gann was aware of the Fibonacci ratio but he did not employ it to price levels to trade with/from – he used his own natural divisions of price based on geometric angles and horizontal price division of 3rds and 8ths etc.

Hope it helps – If you have cast iron evidence that suggests Gann did use Fibonacci then email me (thehovistrader@gmail.com) with details and I’ll amend if I’m wrong.

If you are new to the subject:

Fibonacci was around centuries ago and in nature the Fibonacci sequence crops up a lot, Traders (myself included) have used Fibonacci.  Elliott Wave theory really popularised the method and it is a key basis of EWT, with waves being a certain Fibonacci retracement or extension of a price swing – in my opion and findings it works sometimes but not all the time.

I recently published a blog post on the key 61.8% Fibonacci price retracement level and a random 42% price retracement level that worked more that the 61.8% level!

I have no doubt that Fibonacci plays a part and is present in the markets, I just don’t think it exists as everyone thinks it does.

An alternative to Fibonacci levels

Hi,

I love the concept of having a set of lines on my charts that display potential support/resistance levels – BUT do they really work?

Well, lets have a quick test:

1st I’m going to take a look at the famous 61.8% level – price HAS to find support or resistance on this level and it HAS to hit it, I am not accepting turns where price nearly hits – price has to hit the level and reverse.

2nd I’ll test this over 2 years worth of data by hand – I could do more years but I don’t want to.

3rd I’ll create a new support level of 42% – This level has nothing to do with natural growth, Fibonacci etc It is an independent number plucked out of the air to see what we can deem from this test.

4th I will also test the 50% level too just for comparison.

Here’s the results:

61.8% & 50% Test

50% & 62,8% levels

42% Test

42% levels

Well as we can see from the results it is plain to see that Fibonacci levels aren’t all they’re cracked up to be!

For a start it is impossible to know exactly the level to start from – often these levels did not get a direct hit by starting a retracement from a high or low, often the swings after a high/low matched!

We can see that we could pick virtually any number between 10-90 and it’s likely to have a fairly decent success rate.

Saying all this though and if you check out my Fib/Gann levels page you’ll see that I do like to have lines on my charts to aid potential turning points – this I have decided is a partial flaw and it’s something that I’ll be looking to sort out and tweak in the years ahead.

I urge you to pick a random number and test it for yourself.

Now it’s no secret that I’m a great fan of W.D. Gann.  I’ve studied Gann a lot and it is my conclusion that there is no way on earth that Gann would NOT have known about the Fibonacci number sequence – Gann talks extensively about NATURAL LAW, for centuries Fibonacci and it’s application has been known, Gann would of studied that, yet he makes very little reference to it in his works and prefers to use his own support/resistance levels namely dividing swings into 8ths – he then applied this basis for his gann angles to.

You also cannot get away from the fact that many of today’s Fibonacci experts also use the 50% level – Gann used this extensively too! – the 50% level is not a Fib level!

Like anything you have to make up your mind on what suits you.

Hope it helps

THT

Timing Example

Hi

Heres a quick and brief look at how to combine Timing into your analysis.  As with anything in trading it;s not 100% accurate but I personally find that it;s useful to know, be aware of and incorporate in my trading.

I believe that the market is patterned (although it is very hard to see that pattern all the time), I believe that the minor swings in the market are building something which is then building an even large pattern – in other words Fractal like.  This can then be associated with Elliott Wave Theory – yes, but I don’t trade using EWT due to its subjectiveness.

But I do believe that during the same TIME cycles/swings that the markets maintain a similar Time pattern etc.

For example, when a market makes a series of higher highs and lower lows we class that as an uptrend – what makes it stop?  I believe what makes it stop is the higher time cycle running out, when this higher time cycle ends, the minor swings reverse to the down side and if the higher time cycles (weeks/months/years/decades) are pointing down then the market will make their direction south.

I’m working on how to work out these larger time cycles and their typical direction to see if it;s predictable – this will take a lot of time and effort so bear with me.  The markets are a collection of Human beings making decisions, this is WHY theres a regularity to these cycles.

W.D. Gann said” When TIME runs out, a reversal is inevitable”

Here’s Chart 1:  HIGH

timing 1

Here’s Chart 2: LOW

timing 2

There is absolutely NO way to 100% predict with certainty that a a high or low is in until it’s confirmed by price action and price action only – When I use an indicator, I’m using it to get in on a probable reversal – that does not mean the reversal is confirmed, I might (and have been) early using indicators to get in and then stopped out as price reverses slightly and then puts in the low – this then requires you to MAKE 2 trades when the indicator makes 2 bullish reversals, there’s absolutely nothing you can do about it – unless you widen stops out significantly.

Once the highs confirmed, we’d then run our time analysis from the swing low to obtain roughly when the next HIGH is due in – It is essential to remember that when the higher time cycle expires the minor swings are likely to alter too!  This is why you must compare like for like, i.e. during a bear market section only use time swings from other bear markets to compare.

People talk about Fibonacci retracements – I look at them too – but you NEVER, EVER know for certain WHICH level will hold price – if it does at all.  I bet if you ran a study on Fib levels pretty much ALL known fib levels would hold price – I’ve not carried out a study, nor am I, just my personal thoughts.

To take this one step further I’ve started looking at Fibonacci COUNTS in PRICE and Fibonacci levels looking for cluster zones.

Take a look at chart 3: Fib Price counts

timing 3

So far on the FTSE100 we have Price Fib counts and Fib levels that have acted as support @ the 50% level – the 50% fib level AND price fib counts in points @ 144 points.  144 is also a KEY Gann number and relates to Gann’s square of 12 (12 x 12 = 144)

My thinking is, if the entire universe conforms to Fibonacci related mathematics, then global markets must do too.

The Daily DTosc indicator is also oversold and due  bullish reversal which indicates time should be coming to a low.

Just so that we are all clear the only real time we are going to know for certain is if/when the March high is exceeded!

Anyone new reading this might question how we make money trading with so much uncertainty – welcome to the real world of trading

Hope it helps

THT