W.D. Gann developed technical trading systems that made him a fortune of in excess of 50 million dollars.
Gann was a trading legend and his stature is reflected in the life size portrait people see when they enter the New York Stock Exchange.
Gann Angles were one of his most effective tools so let's look at them. What do they do?
Gann angles allow you to pinpoint your entry and exit levels for bigger profit potential. Let's look at why Gann angles work.
Gann based his investment strategy on the fact that by studying the past we can see patterns that will be reflected in the future which is true of any technical systems, but his view was unique on how these patterns occurred.
Gann based his methods on the following:
Gann believed that market movements were a reflection of human nature which is constant over time and by studying the past we can predict the future.
Gann's used three patterns to predict market behavior in the future.
Using Gann angles requires practice and experience and below we have outlined the basics that everyone using Gann angles should keep in mind.
Firstly, determine time units. The way to determine a time unit is to study charts and look at the distances in which significant price movements occur. Put the angles to the test and see how they perform. The intermediate time period (1 — 3 months) tends to produce the highest number of accurate patterns and is the timeframe to trade.
Secondly, a trader needs to determine the high or low from which to draw the Gann lines. Here you can use Fibonacci levels or pivot points to help you get an accurate picture. Gann then looked for "vibrations" or "price swings."
Finally, you need to know which pattern to use. The most common patterns are the 1x1, the 1x2, and the 2x and are purely differences in the slope of the line. The 1x2 is half the slope of the 1x1. The numbers simply indicate the number of units and the slope of the line. Traders need to look for patterns to trade.
The direction of the slope will be either down and to the right from a high point or up and to the right, if it's a low point. Always look for repeat patterns on the charts.
Gann' theories are based upon the cyclical in nature of market movement, so the easier the patterns are to spot the more likely they will be tradable for profit.
Gann angles are a fantastic tool for predicting support and resistance levels. Of course, many other trading methods use support and resistance lines however Gann angles add a new dimension, simply because they are diagonal.
The best Gann formation will indicate a balance between time and price. This will occur when prices move in sync with time. This is present when the Gann angle being studied is at exactly 45 degrees.
In total there are nine different Gann angles that can be applied. When one line is broken, the following angle will then give the next area of support or resistance.
Gann angles are just one of the tools. He used to amass a fortune trading others, including the Golden ratio, Fibonacci numbers — when combined you have a powerful proven trading method.
As markets are cyclical and human nature never changes, Gann's methods still apply today and are used by many savvy traders.
Gann made millions from his angles and the tools above study his methods further. See what they can do for your trading and you may be glad you did.
by Sacha Tarkovsky