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Gann
Description
W. D. Gann (1878-1955) designed several unique techniques for
studying price charts. Central to Gann's techniques was the use of
geometric angles in conjunction with time and price. Gann believed
that specific geometric patterns and angles had unique
characteristics that could be used to predict price action.
All of Gann's techniques require that equal time and price intervals
be used on the charts, so that a rise/run of 1 x 1 will always equal
a 45 degree angle.
Gann believed that the ideal balance between time and price exists
when prices rise or fall at a 45 degree angle relative to the time
axis. This is also called a 1 x 1 angle (i.e., prices rise one price
unit for each time unit).
Interpretation
Gann Angles are drawn between a significant bottom and top
(or vice versa) at various angles. Deemed the most important by
Gann, the 1 x 1 trendline signifies a bull market if prices are
above the trendline or a bear market if below. Gann felt that a
1 x 1 trendline provides major support during an up-trend and when
the trendline is broken, it signifies a major reversal in the trend.
Gann identified nine significant angles, with the 1 x 1 being the
most important:
1 x 8 - 82.5 degrees
1 x 4 - 75 degrees
1 x 3 - 71.25 degrees
1 x 2 - 63.75 degrees
1 x 1 - 45 degrees
2 x 1 - 26.25 degrees
3 x 1 - 18.75 degrees
4 x 1 - 15 degrees
8 x 1 - 7.5 degrees
Note that in order for the rise/run values (e.g., 1 x 1, 1 x 8,
etc.) to match the actual angles (in degrees), the x- and y-axes
must have equally spaced intervals. This means that one unit on the
x-axis (i.e., hour, day, week, month, etc.) must be the same
distance as one unit on the y-axis. The easiest way to calibrate the
chart is make sure that a 1 x 1 angle produces a 45 degree angle.
Gann observed that each of the angles can provide support and
resistance depending on the trend. For example, during an up-trend
the 1 x 1 angle tends to provide major support. A major reversal is
signalled when prices fall below the 1 x 1 angled trendline.
According to Gann, prices should then be expected to fall to the
next trendline (i.e., the 2 x 1 angle). In other words, as one angle
is penetrated, expect prices to move and consolidate at the next
angle.
Gann developed several techniques for studying market action. These
include Gann Lines, Gann Fans, and Gann Grids.
HotTrader
Software is an excellent program with which to study Gann along with
MetaStock.
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