Gann: Angles And The Square of Nine

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I believe it is prudent that I begin by prefacing this article with a few cautions. First, there is
an abundance of misinformation related to the theory of Gann analysis that is available to
the novice trader. Other schools of trading thought involving Fibonacci, Andrews, or Elliott
may be related to some aspects of Gann, but beware of “pundits” that group some or all these
schools under the umbrella of Gann theory. They are blatantly misguided. Second, you must
have a basic understanding of price movement to be successful in trading. This knowledge is
the foundation of analysis and all else is built upon it. Gann, Elliott, or even oscillators all present
probabilities, but the only thing that is a certainty is that which is occurring on the price chart.
The pattern in the movement of prices should justify the probability that your indicator is giving
you the right signal. Third, quoting Mr. Gann, Whenever price and time are squared, you can
look for a change in trend.” The key word in his statement is “look.” This means to look for some
evidence that the trend has changed before positioning on that probability. I gave a seminar
last year where the basic theme was stop trying to pick tops and bottoms and learn how to earn
money trading.” What I was attempting to explain in the seminar was how to identify what I call
counter trend movements. Counter trend movements are identied as the rst rally after the
fall-off of prices from a signicant high. When prices are trending upward, prices will tend to fall
sharply off a signicant high, either 1 to 3 days or 7 to 10 days depending on the momentum of
the move. But after a high that completes a move, the st counter trend will usually be within
1 to 3 days long. (Note IBM chart Figure #3) Conversely, the opposite is true when prices are
trending downward. Once you’ve been able to locate these counter trend movements, I believe
you will have acquired the knowledge to trade successfully.
The Use of Angles
Gann angles are employed for many reasons but probably the two most important being
rst, to dene when price and time are back in balance with each other and second, to show the
strength or weakness of a position. They are not to be used to randomly buy or sell support and
resistance levels. Since the Gann method of charting is done on geometric charts where the two
axis represent the same space movement, the angles therefore are a geometric relationship to
price and time. The 1 x 1 (or 45°) angle line moves at the rate of one price increment to one time
increment, so on a weekly stock chart this would represent one point per week. The slower 1 x 2
moves at 1/2 point per week and the faster 2 x 1 moves 2 points per week.
Referring to gure #I we see that a stock hits a high of $36 and moves down. Assuming
that this is a weekly chart, when the 45° angle from the high moves down to zero, time would
have moved 36 weeks and if a 45° angle were drawn up from zero at the time of the high, where
those two angles meet would represent 50% of the high price ($18) in both price and time.
This would obviously be very strong support on the geometric chart as price and time would be
balanced or “squared” at a harmonic 50% of the high price.
Figure #2 shows that from the low, price moves above the 2 x 1 angle, then falls back to
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rest on the 45° angle (at point A) bringing price and time back into balance. At point “B” price
moves above the 45° angle from the swing high placing the movement in a strong position
from the tow (above the 45° angle) and strong position from the high (above the 45° angle
from high), indicating a resumption of the uptrend. This is an example of a blow-off movement.
Notice how at point “C” price nds the low at the next ascending angle, then again at point “D”
on the next higher ascending angle. At point “A”, price could have broken the 45° angle but at
point NB” if price recovered that same 45° angle and also moved above the 45° angle from the
high then the same conclusion would apply.
Figure #3 shows a daily chart of IBM. Notice how the high was precisely against the angle
from the low “squaring price and time” and indicating a possible change in trend. There are
many ways to qualify that probability is an important high and one of the ways is with the “square
of nine” which we will look at a little later in this article.
Figure #4 shows a daily chart of the S&P contract. Notice how the last high is again squared
with an angle from the low. This Squaring” occurs 36 days from the low and 72 points up from the
low. Those well versed Figure #2 in Gann theory will recognize 36 x 72 as important harmonies
of 144 and therefore qualifying that N squaring” as important.


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