Advanced Pattern

T2 UNIVERSITY

Advanced Pattern Recognition You will find a wealth of information on the Internet related to this section of your training. One needs only to Google “Gartley pattern” into their search engine to find page after page of information on the subject. If all you’re looking for is an explanation of patterns then your search will take only a few minutes. For most traders it is not simply the patterns themselves that are in question but the “HOW” behind the trading methodology. Simply put, “Gartley and Butterfly patterns freak me out and I’ve got no idea how to use them”. This natural fear and confusion over these pattern formations lead many traders to email and even call me looking for instruction on how to trade these patterns. At the time of this writing we have more than 30 thousand traders who receive our free market preview every week, and it is common for novice traders to send me charts for clarification on specific formations. The problem with this approach is that the trader is working in reverse. Many of them feel as though I am being short or rude when I tell them I don’t review analysis for non-clients but the simple fact is, these traders lack a fundamental understanding of what they are seeing. To respond with a simple “yes” or “no” would do more harm than good because the trader has no idea WHY they have drawn it correctly or incorrectly. At best it gives the trader a false sense of comprehension and at worst leaves them more confused than before. Either way, this subject is one that MUST be approached with the proper framework and foundational understanding of structure and ratio analysis firmly in tact. This is why we spend so much time working on the basics, studying structure and drawing ratios. It is critical that you fully understand this subject matter before moving on. In this section we’re going to cover 4 advanced patterns. The classic 222 Gartley, the butterfly, Crab and Bat formations. For reasons that will become apparent later, in previous courses I only covered the Gartley and Butterfly patterns. This served traders well and the ones who had the greatest interest in the subject matter went on to add the other patterns to their portfolio. While this training was adequate to provide traders a firm foundation I continued to receive requests for training and instruction on both the Crab and Bat formations. Initially I intended to teach these patterns in an advanced course but I have included them in this program and I feel it will round out your training nicely. NOTE: There are a wide variance of Fibonacci levels that can be applied to specific patterns that will be technically “correct”. We’re going to briefly cover those ratios but for the purposes of our training when I refer to an advanced pattern I am referring to the “perfect” pattern. This will reference specific ratios that historically produce the highest probability outcome.

T R I P L E T H R E AT U N I V E R S I T Y

2

We’re going to start with the 222 Gartley pattern as it is my favorite and one of the easiest formations to trade due to the clearly defined risk levels. So without further bloviating, let’s get started.

222 Gartley Pattern Despite what you may have read or heard Gartley never used Fibonacci numbers when he identified the pattern formations that now bear his name. The classic 222 Gartley is aptly named because it appears on page 222 of his book. Ratios were added later and its application is generally credited to Larry Pesavento. Scott Carney has also written a couple of good books on Gartley patterns as well as the other formations we’ll discuss in this section. A Gartley pattern requires an impulse leg followed by 2 retracements and extension. A perfect Gartley will have 2/.618 retracements followed by a 1.272 extension. Below you’ll see examples of both a bullish and bearish Gartley pattern.

T R I P L E T H R E AT U N I V E R S I T Y

3

as I spoke about earlier although you can use a variety of ratios to justify a Gourley pattern we’re going to confine ourselves to what can be considered a perfect Gartley. it has been my experience that when you use a specific ratios in conjunction with these advanced patterns that you increase the probability that you are correct. In the case of the 222 Gartley we would look for an impulse leg followed by 2, .618 retracementsfollowed by a 127 extension. By requiring these specific ratios it is not unreasonable to expect upwards of 70% accuracy for this pattern formation.

Butterfly Patterns the major difference between a butterfly pattern in a Gartley pattern is that D will terminate outside of X. One of the key principles governing the Gartley pattern is the fact that D always terminates inside of X. This is not true in the case of the butterfly pattern. In this case D will always terminate outside of X. In the example below you will notice that we have both an impulse leg and an ABCD pattern completion but because of the retracements the completion of D happens outside of X.

T R I P L E T H R E AT U N I V E R S I T Y

4

If you look closely you’ll see that the reason a butterfly pattern complete outside of X rather than within it is due largely to the initial pullback of the A to B leg. The deep 786 retracement followed by a shallow 382 retracement will always terminate outside of X. Again we’re using specific ratios so the pattern always lines up the same way. Doing it this way also gives us a perfect ABCD pattern in conjunction with our butterfly pattern. Contrary to popular belief it is not necessary to have an ABCD pattern in order to have a butterfly pattern. By requiring this added step what we in effect do is position ourselves to only take advantage of advanced patterns when they present the highest probability of success. A bearish butterfly pattern will look exactly the same. you will have a deep AB retracement of .786 followed by a .382 retracement and then an extension that will come in at 1.618 of AB. If this is confusing to you don’t worry were going to cover all of this in detail in the video training that accompanies this document is meant to serve as nothing more than a brief outline for you to follow and to refer back to as a quick reference.

T R I P L E T H R E AT U N I V E R S I T Y

5

Bat Patterns Next in line is the bat pattern and this can get a little bit confusing simply because now were just adjusting ratios. In reality once you learn the Gartley pattern all of the other patterns are simply a variation of retracement an extension that present buying or selling opportunities at the termination of the pattern.

As you can see from the image above the bad pattern looks a lot like a Gartley pattern the differences you have a shallow ADB retracement of roughly .50. The extension of C to D is also not a perfect ABCD pattern. Instead the ceded the leg is longer than the A to B leg. A Bat pattern should complete and 886 retracement of X to A.

Crab Patterns the last pattern the really talk about is the crab pattern this in my opinion is probably the hardest one to learn and the hardest one to identify because if you are not using the proper ratios a crab pattern is really nothing more than a failed Gartley or Bat pattern.

T R I P L E T H R E AT U N I V E R S I T Y

6

As you can see from the diagram above that just as in the Gartley pattern you have an initial 618 retracement. This is followed by a 50% retracement of B to C. the difference comes in the extension of C to D. This is a much longer and more aggressive move than we see in a Gartley pattern. As we discussed earlier in this document a perfect Gartley pattern consists of 2, .618 retracements followed by a 1.272 extension. For traders who are less disciplined and less knowledgeable about the ratios used in conjunction with these advanced patterns this can be a very confusing predicament. Because we are so specific about the ratios used in our advanced patterns we do not suffer that same confusion. Since we did not receive a 618 retracement of the B to C leg we would not consider this a valid Gartley pattern and thus would immediately be looking at it as a potential Crab pattern. This is not really a very complicated process what it basically comes down to is identifying a series of ratios and instead of viewing them as independent seeing them as a collective. Most traders when they first take a look at these advanced patterns are very intimidated.

T R I P L E T H R E AT U N I V E R S I T Y

7

I promise you that with a little bit of effort and diligence these patterns will start to become very clear to you. If you remember all the way back to the beginning of this course we discussed basic structure, this is a new structure high, this is a new structure low. Were going to discuss these patterns a lot more detail in the video is that accompany this document I said before this is nothing more than a brief overview quick review guide for you. If you don’t feel entirely confident that you can effectively trade ratio patterns at this point don’t worry you shouldn’t.

T R I P L E T H R E AT U N I V E R S I T Y

8

T R I P L E T H R E AT U N I V E R S I T Y

9

T R I P L E T H R E AT U N I V E R S I T Y

10

T R I P L E T H R E AT U N I V E R S I T Y

11