W.D. Gann

1. W.D. Gann

William Delbert Gann (June 16, 1878 – June 24, 1949) was an American financial astrologer, geometrician, and trader. He developed several technical analysis methods, now collectively known as the “Gann Theory,” which are still studied by traders today. Gann’s work is notoriously complex and often shrouded in mystery, relying heavily on geometric shapes, angles, and mathematical relationships to forecast market movements. This article provides a comprehensive overview of Gann’s life, theories, key concepts, and their application in modern trading. It’s important to note that Gann’s methods are controversial and lack empirical validation; they require significant study and interpretation.

Biography

William D. Gann was born in Lufkin, Texas. He came from a family with a background in finance and banking. Unlike many traders of his time, Gann didn't rely on fundamental analysis but instead focused on charting and mathematical principles. He began his trading career in 1909, and quickly gained notoriety for his remarkably accurate market predictions. Gann was a private individual, rarely giving public talks or offering detailed explanations of his methods. He published several books and courses, but they were often written in a cryptic and symbolic style, leaving much room for interpretation. He notably predicted the 1907 panic and the 1929 stock market crash. Gann reportedly amassed a substantial fortune through his trading activities, although precise figures are difficult to verify. He died in 1949, leaving behind a legacy of complex, often debated, trading techniques.

Core Concepts of Gann Theory

Gann’s theories are multifaceted and interwoven. Here's a breakdown of the key concepts:

• Time Cycles: Gann believed that markets move in cycles, based on natural rhythms and geometric patterns. He identified various time cycles, including annual, monthly, weekly, and daily cycles, as well as longer-term cycles lasting years or even decades. These cycles are not necessarily fixed, but rather tend to repeat with variations. Understanding these cycles is crucial for anticipating potential turning points in the market. See Candlestick Patterns for related cycle concepts.
• Geometric Angles: Gann placed significant emphasis on geometric angles, particularly the 45-degree angle, which he considered a key angle of support and resistance. He believed that price movements often reacted to these angles. Other important angles included 60, 75, and 90 degrees. These angles are drawn from significant highs and lows on a chart. Fibonacci retracements also utilize geometric relationships.
• Squares of Nine: The Square of Nine is a geometric tool used to identify potential support and resistance levels, as well as turning points in time. It's a 9x9 grid with numbers 1 through 9 placed in a specific order. Gann used this tool to project future price levels and timeframes. The angles within the Square of Nine correspond to the geometric angles mentioned above. Elliott Wave Theory can be considered alongside cyclical analysis.
• Hexagon Theory: Similar to the Square of Nine, the Hexagon Theory uses a hexagonal grid to identify potential support and resistance levels. Gann considered the hexagon a fundamental geometric shape representing natural balance and harmony.
• Cardinal Numbers: Gann assigned specific importance to certain numbers, which he called "Cardinal Numbers". These included 1, 2, 3, 4, 5, 6, 7, 8, 9, and 0. He believed these numbers played a role in market cycles and price movements. He often used these numbers to calculate time intervals and price targets. Moving Averages can be utilized with these concepts for confirmation.
• Planetary Influences: Gann incorporated astrological principles into his trading methods, believing that planetary positions and alignments influenced market behavior. This aspect of his work is highly controversial and is often dismissed by mainstream financial analysts. Trend Lines can help visualize these influences alongside Gann's methods.
• Price and Time Harmony: For Gann, price and time were inextricably linked. He believed that significant market events occurred when price and time aligned according to his geometric and mathematical principles. Support and Resistance Levels are key components in determining price harmony.
• Ratio Analysis: Gann used various mathematical ratios to identify potential price targets and turning points. These ratios included the square root of time, the Fibonacci sequence, and other geometric progressions. Bollinger Bands utilize ratio-based calculations.

Tools and Techniques

Gann employed a variety of tools and techniques to analyze markets. Some of the most prominent include:

• Gann Fans: Drawn from significant highs and lows, Gann Fans consist of lines representing various geometric angles (45, 60, 75, 90 degrees). These lines act as potential support and resistance levels.
• Gann Grid: A grid overlayed on a chart, based on the Square of Nine, used to identify potential turning points in price and time.
• Gann Wheel: A circular chart divided into segments representing different time periods and angles. It's used to visualize time cycles and identify potential turning points.
• Time Counts: Gann utilized specific time intervals and calculations based on his geometric principles to predict future market movements. These time counts often involved counting bars, days, weeks, or months from significant highs and lows.
• Whole Number Theory: Gann believed that prices tended to move in whole number increments, rather than fractional amounts. He would often look for prices to reach or react to whole number levels.
• Decline/Advance Ratio: Gann used the ratio of a market's decline to its advance to identify potential turning points. A specific ratio would signal a change in trend. Relative Strength Index (RSI) can corroborate these ratios.

Applying Gann Theory in Modern Trading

Applying Gann Theory requires a significant investment of time and effort. It's not a simple "plug-and-play" system. Here's how modern traders attempt to utilize Gann’s concepts:

1. Chart Setup: Begin with a clear and well-defined chart, using appropriate timeframes. Many traders use daily, weekly, and monthly charts for Gann analysis. 2. Identify Significant Highs and Lows: Identify key highs and lows on the chart, as these points serve as the basis for drawing Gann Fans, Grids, and other geometric tools. 3. Draw Gann Fans: Draw Gann Fans from these significant highs and lows, using the angles of 45, 60, 75, and 90 degrees. 4. Overlay Gann Grid: Overlay a Gann Grid on the chart, aligning it with the significant highs and lows. 5. Analyze Time Cycles: Identify potential time cycles using the Square of Nine or other cyclical analysis techniques. Look for repeating patterns and correlations. 6. Combine with Other Indicators: Gann’s methods are often used in conjunction with other technical indicators, such as MACD, Stochastic Oscillator, and Volume Analysis, to confirm signals and reduce false positives. 7. Look for Confluence: Pay attention to areas where multiple Gann tools and indicators converge. Confluence suggests a higher probability of a significant market movement. 8. Risk Management: Implement strict risk management rules, including stop-loss orders and position sizing, to protect your capital.

Criticisms and Limitations

Despite its enduring popularity among some traders, Gann Theory is subject to significant criticism:

• Subjectivity: Gann’s methods are highly subjective, requiring significant interpretation and judgment. Different traders may arrive at different conclusions based on the same data.
• Lack of Empirical Evidence: There is little empirical evidence to support the validity of Gann Theory. Many of his predictions are attributed to chance or selective reporting.
• Complexity: The theory is incredibly complex and difficult to master, requiring years of study and practice.
• Backtesting Challenges: Backtesting Gann’s methods is challenging due to the subjective nature of the techniques and the lack of clear rules.
• Overfitting: The flexibility of Gann’s techniques can lead to overfitting, where the system is optimized to perform well on historical data but fails to generalize to future data. Chart Patterns are sometimes prone to similar issues.

Despite these criticisms, Gann’s theories continue to fascinate traders and researchers. Some argue that the value of Gann’s work lies not in its predictive accuracy, but in its ability to provide a unique framework for understanding market dynamics and identifying potential trading opportunities.

Resources for Further Study

• Gann's Books: "Tunnel Through the Sky," "The Fourth Dimension," "How to Make Profits in Commodities"
• Online Forums and Communities: Numerous online forums and communities dedicated to Gann analysis.
• Trading Software: Some trading platforms offer built-in Gann tools and features.
• Educational Courses: Various online and offline courses provide instruction on Gann Theory.
• Websites: Gann Study and WD Gann Official Site

Advanced Concepts

Beyond the core concepts, Gann explored more complex ideas:

• The Law of Vibration: Gann believed that everything in the universe vibrates at a certain frequency, and that these vibrations influence market movements.
• The Law of Causation: He asserted that every effect has a cause, and that understanding the causes of market movements can help predict future events.
• The Law of Cycles: Gann emphasized the importance of recognizing and understanding cyclical patterns in the market.
• The Law of Polarity: He believed that actions and reactions are equal and opposite, and that understanding this principle can help identify potential turning points.
• The Law of Rhythm: Gann saw rhythm as a fundamental aspect of market behavior, and that recognizing rhythmic patterns can provide valuable trading insights. Ichimoku Cloud attempts to capture rhythmic patterns.

Conclusion

W.D. Gann remains a controversial figure in the world of financial markets. His theories are complex, often cryptic, and lacking in empirical validation. However, his work continues to inspire and challenge traders today. While not a guaranteed path to profit, studying Gann’s methods can provide a unique perspective on market dynamics and potentially enhance your trading skills. Success with Gann Theory requires dedication, discipline, and a willingness to embrace a non-traditional approach to trading. Remember to always practice proper Risk Management and never trade with money you cannot afford to lose. Also, consider exploring Algorithmic Trading for more systematic approaches. Finally, understanding Market Psychology is crucial for any trading strategy, including those based on Gann's work.

Technical Analysis Chart Patterns Fibonacci retracements Elliott Wave Theory Moving Averages Trend Lines Bollinger Bands MACD Stochastic Oscillator Volume Analysis Candlestick Patterns Support and Resistance Levels Relative Strength Index (RSI) Market Psychology Risk Management Algorithmic Trading Ichimoku Cloud

Start Trading Now

Sign up at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to receive: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners