What are Gann Techniques?
Gann Techniques are technical analysis tools that were developed by the renowned financial trader William Delbert Gann (WD Gann), during his career on Wall Street which spanned the first half of the twentieth century. One of the most notable traders in the application of astrology trading, all of Gann’s techniques find their basis in geometry, astronomy and astrology, and ancient mathematics.
Using Gann Angles
One of the best known of the Gann Techniques is Gann Angles (Figure2). Gann angles are used to predict price movement based on the angle between price and time. Gann’s theory was that a 45 degree angle between time and price represents the most significant confirmation of movement. This 45-degree angle is also referred to as a 1x1 angle, on the premise of a ratio between time and price of 1:1. According to Gann, a bull market is indicated when the prices rise at a 45 degree angle above the trend line in relation to the time line. The reverse applies with the indication of a bear market in the event that the price drops at a 45 degree angle below the trend line relative to the time line.
Gann identified nine angles which he considered to be significant, but believed the 1x1 to be the most important. The other eight are (from smallest to largest): 8x1 (7.5 degrees), 4x1 (15 degrees), 3x1 (18.75 degrees), 2x1 (26.25 degrees), 1x2 (63.75 degrees), 1x3 (71.25 degrees), 1x4 (75 degrees), and 1x8 (82.5 degrees).
Application of the Gann Fan
Another technique devised by Gann is known as the Gann Fan (Figure 3). This technique applies each of the nine angles identified within the theory of Gann Angles to a chart.
Gann discovered that each of these angles offer valuable insight into levels of support and resistance, dependant on the prevailing trend. A 1x1 angle offers a strong indication of support when an uptrend is in progress, and conversely may signal a reversal when prices decline below the 1x1 angle. When this decline occurs, it can be expected that the prices will then drop to the next angle (in this case, the 2x1).
Gann’s theory is that the breaking of an angle line will likely be followed by movement to, and consolidation at the next angle line in the fan.
The Gann Grid
A Gann Grid (Figure 4) is another tool which can be used to indicate price movement, and is plotted by placing a series of intersecting 45-degree angle lines over a price chart.
An intersection between the price line and the Gann Grid lines can provide certain signals. It is suggested that a crossing of the Gann Lines can indicate a breaking of the prevailing trend.
Cardinal Squares and Other Gann Techniques
Another of the Gann techniques is called Cardinal Squares (Figure 5), and the most common of these squares is the Square of 9 (Figure 6). This tool applies numbers to a graph, starting in the center, and moving outward in a spiral. There are various software programs available which facilitate the calculation of Gann Square of 9.
Two other popular techniques by Gann are the Gann Hexagon (Figure 7), and the Circle of 360 (Figure 8). These analysis tools apply data to a chart, forming the specified pattern. As with other Gann techniques, Gann Squares, the Gann Hexagon and the Circle of 360 are used to assess the relationship between time and price with the intention of timing the market.
Gann Theory is based on the premise that there is always a balance between price and time, and that there is order to the often seemingly chaotic movements of the market. Identifying the pattern or order in these movements, and the points at which balance will occur is the goal of applying Gann Techniques to trading. As with any type of analysis, it is advisable to use complementary techniques to support the information obtained, and not to rely solely on one form of data interpretation.