W.D. Ganns Techniques

W.D. Gann's Techniques

Introduction

William Delbert Gann (1878 – 1955) was an American financial trader who developed several technical analysis methods. He is considered by many to be one of the most important figures in the history of financial markets, despite the fact that much of his work remains shrouded in mystery and is often interpreted subjectively. Gann's techniques are not a single, easily defined system, but rather a collection of interrelated concepts and tools designed to forecast market movements. This article aims to provide a beginner-friendly overview of these techniques, acknowledging their complexity and the varying interpretations that exist. Understanding Gann’s methods requires dedication and a willingness to explore a less conventional approach to market analysis. This article will delve into his core principles, key tools, and how they can be applied, even in the context of modern trading. It's important to note that Gann’s methods are best used in conjunction with other forms of Technical Analysis and sound Risk Management.

Core Principles

Gann believed that markets were not random and were governed by geometric angles, time cycles, and price patterns. His philosophy rested on several core principles:

**Time is Factor:** Gann stressed the importance of time in forecasting. He believed that time cycles were fundamental to market movements and that specific time periods would witness recurring highs and lows. He wasn’t simply looking at calendar time, but also at cycles within cycles, often using dates and their numerical equivalents.
**Price is Geometry:** Gann saw price movements as geometric shapes, particularly squares and circles. He believed that prices moved according to precise angles and that these angles could be used to predict future price levels.
**Squaring of Time and Price:** This is one of Gann’s most famous concepts. It suggests that significant market movements often occur when time and price are squared. For example, a strong move might occur after 9 days at a price that is a square root of a previous high or low. (e.g., if a prior high was $100, a move might occur around $10 or $1000).
**Harmony of Opposites:** Gann believed that markets moved in a cyclical fashion between bullish and bearish forces. He looked for the balance between these opposing forces to identify potential turning points.
**Universal Laws:** Gann believed that the markets were subject to universal laws, similar to those governing nature. He attempted to uncover these laws through his research and apply them to trading.
**Fractals:** Though the term “fractal” wasn't coined during Gann's lifetime, his work implicitly recognizes the fractal nature of markets – patterns repeating themselves on different time scales. This is evident in his use of cycles and geometric shapes across various timeframes.

Key Tools and Techniques

Gann employed a variety of tools and techniques to analyze markets. Here are some of the most prominent:

**Angles:** Gann angles are arguably his most well-known tool. These are lines drawn from significant highs and lows at specific angles (1/8, 1/4, 1/3, 2/8, 3/8, 1/2, 5/8, 3/4, 7/8). The 45-degree angle (1/2 angle) is considered a key support and resistance level. These angles act as dynamic support and resistance, guiding price movements. Candlestick Patterns often form at or near these angles, providing confirmation signals.
**Time Cycles:** Gann identified numerous time cycles, including annual, monthly, weekly, and daily cycles. He used these cycles to predict the timing of market turns. Common cycles he observed include 7, 14, 21, 28, 35, 42, 49, 56, 63, 70, and 77 days. He also paid attention to planetary cycles, believing they influenced market sentiment. Understanding Elliott Wave Theory can complement Gann’s cyclical approach.
**Geometric Shapes (Squares & Circles):** Gann used squares and circles to identify potential price targets and support/resistance levels. He often drew squares around price ranges to identify key levels. The Time Square is a specific technique where a square is constructed based on the range of a significant price move, and the sides of the square are projected into the future to identify potential turning points.
**Fibonacci Numbers & Ratios:** While Gann didn't explicitly focus on Fibonacci, his work shares similarities with Fibonacci analysis. He used ratios and sequences to identify retracement levels and potential price extensions. Combining Gann's angles with Fibonacci Retracements can provide robust support and resistance levels.
**Hexagon:** Gann used the hexagon as a geometric shape to forecast market movements. The hexagon’s points represent key price levels and time periods.
**Cardinal Numbers:** Gann assigned numerical values to letters and used these values to analyze names, dates, and events related to the market. This is a more esoteric aspect of his work and is often debated.
**Natural Numbers:** He used natural numbers (1, 2, 3, 4, 5…) and their squares and cubes in his calculations, believing they held significance in market movements.
**Gann Fans:** A variation of Gann angles, Gann Fans use multiple angles emanating from a single point, offering a wider range of potential support and resistance levels.
**Gann Grid:** A grid overlayed on a chart, using time and price squares to identify potential support and resistance zones.

Applying Gann's Techniques – A Step-by-Step Approach

While complex, here's a simplified approach to applying Gann's techniques:

1. **Identify Significant Highs and Lows:** Start by identifying major swing highs and lows on the chart. These points will serve as the foundation for drawing Gann angles and constructing geometric shapes. Chart Patterns can help identify these key levels. 2. **Draw Gann Angles:** Draw Gann angles from these significant highs and lows, using the standard angles mentioned above (1/8, 1/4, 1/3, etc.). 3. **Look for Angle Breaks:** Pay attention to when price breaks through Gann angles. A break above a resistance angle suggests bullish momentum, while a break below a support angle suggests bearish momentum. 4. **Identify Time Cycles:** Analyze the chart for recurring time cycles. Look for patterns that repeat at regular intervals. Moving Averages can help smooth price action and highlight cyclical patterns. 5. **Construct Geometric Shapes:** Draw squares and circles around significant price ranges to identify potential support and resistance levels. 6. **Combine Techniques:** Don't rely on a single technique. Combine Gann angles, time cycles, and geometric shapes to create a more comprehensive analysis. Bollinger Bands can be used in conjunction with Gann angles to identify volatility breakouts. 7. **Confirm with Other Indicators:** Use other technical indicators, such as RSI, MACD, and volume, to confirm your analysis. 8. **Risk Management:** Always use proper Stop Loss Orders and position sizing to manage your risk.

Challenges and Criticisms

Gann’s techniques are not without their challenges and criticisms:

**Subjectivity:** Many of Gann’s methods are open to interpretation. Different traders may draw angles and identify cycles differently, leading to varying forecasts.
**Complexity:** Gann’s techniques are complex and require a significant investment of time and effort to learn and master.
**Lack of Empirical Evidence:** Critics argue that there is limited empirical evidence to support the effectiveness of Gann’s techniques. Many successes attributed to Gann are often viewed as coincidences or the result of hindsight bias.
**Esoteric Nature:** Some of Gann's concepts, such as the use of cardinal numbers and planetary cycles, are considered esoteric and difficult to understand.
**Data Mining:** It’s easy to find patterns in historical data that don’t necessarily have predictive power. This is known as data mining or curve fitting.

Gann in Modern Trading

Despite the criticisms, Gann’s techniques remain popular among traders. Modern traders often adapt Gann's methods to contemporary markets and use them in conjunction with other forms of analysis. Software and charting platforms now offer tools to automatically draw Gann angles and construct geometric shapes, making it easier to apply these techniques. The core principles of time, price, and geometry remain relevant, even in today's fast-paced markets.

Furthermore, the concepts of fractal patterns and cyclical behavior highlighted by Gann resonate with modern understanding of market dynamics. Traders can leverage Gann's insights to identify potential turning points, manage risk, and develop more informed trading strategies. The integration of Gann’s work with algorithmic trading and automated systems is also gaining traction. Order Flow Analysis can be combined with Gann’s techniques to gain deeper insights into market behavior.

Resources for Further Learning

**"Tunnel Through Time" by Howard B. Katz:** A classic text on Gann's techniques.
**"How to Trade in Stocks" by William D. Gann:** Gann's original book, though challenging to decipher.
**"The Gann Master Workbook" by George L. Scherrer:** Another comprehensive guide to Gann's methods.
**Online Forums and Communities:** Many online forums and communities dedicated to Gann's techniques can provide valuable insights and support. Search for “Gann trading forum” or “Gann analysis.”
**TradingView:** A charting platform that offers tools for drawing Gann angles and constructing geometric shapes.
**MetaTrader 4/5:** Popular trading platforms with customizable indicators that can be used to implement Gann’s techniques.
**Babypips.com:** A website offering comprehensive educational resources on Forex Trading and technical analysis.
**Investopedia.com:** A valuable resource for understanding financial terms and concepts.
**StockCharts.com:** A charting website with a variety of technical analysis tools.
**Tradingeconomics.com:** A website providing economic indicators and financial data.
**DailyFX.com:** A website offering news, analysis, and education on Forex trading.
**FXStreet.com:** A website providing news and analysis on Forex, commodities, and indices.
**Bloomberg.com:** A leading source of financial news and data.
**Reuters.com:** Another leading source of financial news and data.
**Yahoo Finance:** A popular website for tracking stocks and financial markets.
**Google Finance:** A similar platform to Yahoo Finance.
**TradingView Ideas:** A platform where traders share their analysis and insights.
**Seeking Alpha:** A website providing investment research and analysis.
**MarketWatch:** A website providing financial news and analysis.
**CNBC:** A television channel and website providing financial news and analysis.
**Kitco:** A website providing information on precious metals.
**GoldPrice.org:** A website tracking gold prices and related data.
**Oilprice.com:** A website providing news and analysis on oil markets.
**FXCM:** A Forex broker offering educational resources.
**OANDA:** Another Forex broker offering educational resources.
**IG:** A leading online trading platform.
**CMC Markets:** A global online trading platform.

Technical Analysis Chart Patterns Candlestick Patterns Elliott Wave Theory Fibonacci Retracements Moving Averages RSI MACD Stop Loss Orders Risk Management Forex Trading Order Flow Analysis

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