Study of Gann concept and the implementations: July 2008

HOW TO TRADE THE SQUARE OF NINE WITH A CALCULATOR AND A PENCIL

Any mention of WD Gann is usually preceded or followed with 'legendary trader.' I suppose that's appropriate because no other stock or commodities trader, R.N. Elliott excepted, has achieved near cult status. The biggest difference between Gann and Elliott is that the latter published his work and freely divulged his "secrets." $5,000 courses notwithstanding, Gann never did. In a 1922 interview when WD Gann was asked to reveal the cause behind his incredibly accurate time factor, he responded, "That is my secret and too valuable to be spread broadcast. Besides, the public is not yet ready for it."

WD Gann was many things. Above all he was a prolific researcher and writer. Unfortunately much of what Gann wrote, as well as much of what has been written about him, is so mystifying, complicated, and convoluted that most Gann students give up disappointed in spirit and lighter in the wallet. I have paid more for one Gann book than I did for my first car, and the car was a lot more useful! Most of what's available on the Gann Wheel and the Square of Nine is no exception.

WD Gann is reported to have carried two pieces of paper onto the stock and commodities trading floor. A 9x9 table of the numerals 1-81, and a table of numerals that has come to be known as the Gann Wheel. He specially configured for the day's activities. WD Gann sold a variety of trading courses for more than 50 years and so far as we know not one of them ever explained in detail what he did with that 9x9 table or with that other table of numerals, or anything else related to the Square of Nine. Maybe he thought nobody would believe him.

We traveled the usual hyper expensive Gann book route and departed disappointed in spirit and lighter in the wallet but captivated with Gann's comments like " When price and time square change is inevitable " - captivated enough to gather all the fragments of information we could find in WD Gann's work and in others that had had written about the Square of Nine and the Gann Wheel and how it could be applied to stock, options and forex trading. I do not recall a Eureka Moment but at some point it all came together after we were introduced to an uncomplicated formula that converted price and time to degrees of a circle. Out went the Gann Wheel, the overlays, and table size charts for a cheap calculator and a pencil. We found some Square of Nine magic and never looked back! It is a good feeling when people tell us they got more out of our little ebook than the stuff they spent literally thousands of dollars on.

It's a difficult concept to get your mind around but price and time are not only related, they are interchangeable. With our ebook you can take a price, a range, the number of trading days, or the number of calendar days and figure out exactly when each or all of them will square at any time in the future. The formulae for converting price and time to degrees of a circle, and for finding all the future prices and times when a pivot high or pivot low will square on the Square of Nine, and the method for constructing Square of Nine Roadmap charts from a plain price chart are a solid foundation for making the Square of Nine your own without ever touching a paper Gann Wheel. Learning through the examples in the ebook the five ways that the markets square price and time can provide you with knowledge that may not be obtainable by any other means.

The purpose of this work is to explain concisely and in detail simple mathematical and graphical techniques for applying WD Gann's Square of Nine to real world stock, stock option, and forex trading situations. The Square of Nine is not your usual method of technical analysis. It's like nothing you've ever seen. A completely unrelated technique that either confirms or contradicts your usual methods can be invaluable when making decisions. The Square of Nine is not the magic bullet, although it can seem like it at times. It is about as objective as it gets. Either price and time square or they don't.

The ability to draw Roadmap charts in seconds after a change in trend and to use a mathematical formula to check for squaring may even make this modern implementation of the Square of Nine better than what Gann himself had. The recent squaring of price and time in the Bonds is powerful proof of the effectiveness of this magical tool. If we followed Bonds closely we would have known on March 23 that price and time would square on June 3, although we would not have have know at that time that June 3 would be the swing high.

There is nothing else to buy. You do not need an expensive Gann Wheel, or overlays, or compasses or anything else that gets sold in the usual Gann course. We show you step-by-step exactly how to determine with a simple mathematical formula when price and time square for any ticker in any time frame. Unless you're really good with square roots you will need a cheap calculator. To accelerate your learning speed we are making a beta version of the training software to draw the Roadmap Charts available at no cost to current and past purchasers of this ebook.

Using the Look-Ahead feature of this mathematical application of the Square of Nine, you could have determined to watch for a change in Crude's bullish trend less than 1 point from a major high.

So far as we know the totality of information in this ebook is not available from any other single source at any price. Included as appendices are excerpts from WD Gann's original works: "Why Geometrical Angles Work on Stocks," "The Master Mathematical Price, Time and Trend Calculator" and others.

TRADINGFIVES
June 2, 2003

Gann. and astrology articles

Gann and Astrology

According to Robert W. Colby, in The Encyclopedia of Technical Market Indicators, page 108, Gann "intensely applied astrology to market timing." At one point, Gann studied Indian sidereal astrology in India. In fact, the famous Gann wheel was first used by tea merchants in seventeenth century India. For further reading on the subject of the connection between Gann and Astrology see:

How to Win as a Stock Market Speculator, by Alexander Davidson, page 253-255.
The life and work of W.D.Gann, by Solomon Thallon, page 1.
The Fated Sky, Astrology in History, Benson Bobrick, page 308.
Pattern, Price & Time: Using Gann Theory in Trading Systems, by James A. Hyerczyk, page 19.
The Encyclopedia of Technical Market Indicators, by Robert W. Colby, page 108.
New Thinking in Technical Analysis: Trading Models from the Masters, by Rick Bensignor, page 14.
Predicting the Future: An Introduction to the Theory of Forecasting, by Nicholas Rescher, page 23.
The Technical Analysis of Stocks, Options and Futures, by William F. Eng, page 345, 371.

Books and Articles by W D Gann

Tunnel Thru The Air, or looking back from 1940
Truth of The Stock Tape
Wall Street Stock Selector
How to Make Profts Trading in Commodities
45 Years in Wall Street
Magic Word
How to Make Profits Trading In Puts And Calls (an early text on trading options)
Face Facts America

source :wikipedia.org

How To Use Gann Indicators

Gann studies have been used by active traders for decades and, even though the futures and stock markets have changed considerably, they remain a popular method of analyzing an asset's direction. New trading areas, such as the foreign exchange market and the invention of exchange-traded funds (ETFs) have also made it necessary to revisit some of the construction rules and application concepts. Although the basic construction of Gann angles remains the same, this article will explain why the changes in price levels and volatility have deemed it necessary to adjust a few key components.

Basic Elements of Gann Theory
Gann angles are a popular analysis and trading tool that are used to measure key elements, such as pattern, price and time. The often-debated topic of discussion among technical analysts is that the past, the present and the future all exist at the same time on a Gann angle. When analyzing or trading the course of a particular market, the analyst or trader tries to get an idea of where the market has been, where it is in relation to that former bottom or top, and how to use the information to forecast future price action.

Gann Angles Versus Trendlines
Of all of W.D. Gann's trading techniques available, drawing angles to trade and forecast is probably the most popular analysis tool used by traders. Many traders still draw them on charts manually and even more use computerized technical analysis packages to place them on screens. Because of the relative ease traders today have at placing Gann angles on charts, many traders do not feel the need to actually explore when, how and why to use them. These angles are often compared to trendlines, but many people are unaware that they are not the same thing.

A Gann angle is a diagonal line that moves at a uniform rate of speed. A trendline is created by connecting bottoms to bottoms in the case of an uptrend and tops to tops in the case of a downtrend. The benefit of drawing a Gann angle compared to a trendline is that it moves at a uniform rate of speed. This allows the analyst to forecast where the price is going to be on a particular date in the future. This is not to say that a Gann angle always predicts where the market will be, but the analyst will know where the Gann angle will be, which will help gauge the strength and direction of the trend. A trendline, on the other hand, does have some predictive value, but because of the constant adjustments that usually take place, it's unreliable for making long-term forecasts.

Past, Present and Future
As mentioned earlier, the key concept to grasp when working with Gann angles is that the past, the present and the future all exist at the same time on the angles. This being said, the Gann angle can be used to forecast support and resistance, strength of direction and the timing of tops and bottoms.

Gann Angles Provide Support and Resistance

Using a Gann angle to forecast support and resistance is probably the most popular way they are used. Once the analyst determines the time period he or she is going to trade (monthly, weekly, daily) and properly scales the chart, the trader simply draws the three main Gann angles: the 1X2, 1X1 and 2X1 from main tops and bottoms. This technique frames the market, allowing the analyst to read the movement of the market inside this framework.

Uptrending angles provide the support and downtrending angles provide the resistance. Because the analyst knows where the angle is on the chart, he or she is able to determine whether to buy on support or sell at the resistance.

Traders should also note how the market rotates from angle to angle. This is known as the "rule of all angles". This rule states that when the market breaks one angle, it will move toward the next one.

Another way to determine the support and resistance is to combine angles and horizontal lines. For example, often a downtrending Gann angle will cross a 50% retracement level. This combination will then set up a key resistance point. The same can be said for uptrending angles crossing a 50% level. This area becomes a key support point. If you have a long-term chart, you will sometimes see many angles clustering at or near the same price. These are called price clusters. The more angles clustering in a zone, the more important the support or resistance.

Gann Angles Determine Strength and Weakness

The primary Gann angles are the 1X2, the 1X1 and the 2X1. The 1X2 means the angle is moving one unit of price for every two units of time. The 1X1 is moving one unit of price with one unit of time. Finally, the 2X1 moves two units of price with one unit of time. Using the same formula, angles can also be 1X8, 1X4, 4X1 and 8X1.

A proper chart scale is important to this type of analysis. Gann wanted the markets to have a square relationship so proper chart paper as well as a proper chart scale was important to his forecasting technique. Since his charts were "square", the 1X1 angle is often referred to as the 45-degree angle. But using degrees to draw the angle will only work if the chart is properly scaled.

Not only do the angles show support and resistance, but they also give the analyst a clue as to the strength of the market. Trading on or slightly above an uptrending 1X1 angle means that the market is balanced. When the market is trading on or slightly above an uptrending 2X1 angle, the market is in a strong uptrend. Trading at or near the 1X2 means the trend is not as strong. The strength of the market is reversed when looking at the market from the top down. Anything under the 1X1 is in a weak position.

Gann Angles Can be Used for Timing

Finally, Gann angles are also used to forecast important tops, bottoms and changes in trend. This is a mathematical technique known as squaring, which is used to determine time zones and when the market is likely to change direction. The basic concept is to expect a change in direction when the market has reached an equal unit of time and price up or down. This timing indicator works better on longer term charts, such as monthly or weekly charts; this is because the daily charts often have too many tops, bottoms and ranges to analyze. Like price action, these timing tools tend to work better when "clustered" with other time indicators.

Conclusion
Gann angles can be a valuable tool to the analyst or trader if used properly. Having an open mind and grasping the key concept that the past, present and future all exist at the same time on a Gann angle can help you analyze and trade a market with more accuracy. Learning the characteristics of the different markets in regard to volatility, price scale and how markets move within the Gann angle framework will help improve your analytical skills.

by James Hyerczyk,

James A. Hyerczyk is a registered commodity trading advisor with the National Futures Association. Hyerczyk has been actively involved in the futures markets since 1982 and has worked in various capacities within the futures industry, ranging from technical analyst to commodity trading advisor. Using Gann theory as his core methodology, Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. Hyerczyk is a member of the Markets Technicians Association and holds a master's degree in financial markets and trading from the Illinois Institute of Technology.

SQUARE OF NINE PRINCIPLES

THE GANN WHEEL IS A SQUARE ROOT CALCULATOR

The Gann Wheel, what most people think of as the Square of Nine, is sometimes called a "Square Root Calculator" or a device that "Squares the Circle." This simple illustration may explain how and why these terms came about. You probably recognize that the illustration is just the first few rings of a Gann Wheel with the numeral "1" at the center.

31	32	33	34	35	36	37
30	13	14	15	16	17	38
29	12	13	4	5	18	39
28	11	2	1	6	19	40
27	10	9	8	7	20	41
26	25	24	23	22	21	42
49	48	47	46	45	44	43

In Square of Nine parlance we say things like 19 is 90 degrees from 15. That makes sense only if you can visualize that this rectangular table of numbers is enclosed in a circle (or series of circles) of 360 degrees. In this case, the number 19 is 1/4 the way around the circle from the number 15, or 90 degrees in circumference from 15. The number 34 is directly above the number 15 and positioned one circumference or ring outside the circle that contains the number 15. In the same sense that we can say that 19 is 90 degrees from 15, we can say that 34 is 360 degrees from 15, or one complete rotation of the circle from 15. So, that explains where squaring the circle comes from. A more accurate expression would be that we're circling the square but that never did catch on.

HOW TO ROTATE AROUND THE GANN WHEEL

Here's where it gets fun. The square root of 15 is 3.87. Add two to the square root of 15 and we get 5.87. Square 5.87 and we get 34.49 which rounds to 34. Now we know that adding two to the square root of a number and squaring that sum is the same thing as a 360 degree rotation up on the Gann Wheel. If "2" represents a 360 degree rotation then "1" represents a 180 degree rotation, "0.5" a 90 degree rotation, and so on. W.D. Gann tells us that 90 degrees in very important in the stock market. What he's really saying is that adding and subtracting .5 (and exact multiples or proportions of .5) to the square root of a stock price and then squaring the result is very important! We acknowledge that there is is another school of Gann thought that will say that Gann's reference to 90 degrees relates to the movement of celestial bodies. We've looked into that and they may be right, but for our purposes we've also learned that these schools of thought can peacefully exist alongside each other without contradiction. A very few people have been using some variation of the Gann Wheel for about 100 years now. In his famous interview given to Richard D. Wyckoff in 1909, W.D. Gann attributed market movements to some undefined "law of vibration." People can disagree about what W.D. Gann meant by that but we, at least, are fairly certain he was talking about the principles underlying the Square of Nine.

WHAT IS SO SPECIAL ABOUT THE SQUARE OF NINE ?

The Square of Nine is unique because unlike every other method of tecnhical analysis, the Square of Nine is totally indifferent to whether the input variable is a price, a range of prices, or a number of trading days or calendar days. They are all the same and completely interchangeable. Say what? That can be a little hard to get your brain around after spending years studying chart patterns, exotic moving averages, and oscillators. That's the beauty of it. Price and time become interchangeable by converting them to degrees of a circle. Squares and square roots are part of that process. Once price and time are conceptualized only as degrees of concentric circles we could care less about their actual magnitude. At that point we care only about their orbital relationship. Are they in opposition, conjunction or square? You will find that almost every significant high or low pivot point is indeed in opposition, conjunction or square to a previous price, range or time. You can see a recent example of price-to-price relationships in our Square Root Theory article. Other possible relationships are price-to-time, range-to-price, time-to-range, and so on.

Is this what W.D. Gann meant in that Wyckoff interview when he said "just as the pendulum returns again in its swing, just as the moon returns in its orbit, just as the advancing year over brings the rose of spring, so do the properties of the elements periodically recur as the weight of the atoms rises." One other very special aspect of the Square of Nine is that the more you study the more you learn how much you don't know!

ROADMAP CHARTS USE SQUARE OF NINE PRINCIPLES

Roadmap Charts are a simple and elegant construct that use square roots to convert price and time into channels and a mathematically precise grid that can contain a trend for days, weeks, months or even years. Although the channels look like conventional trend lines consider that trend lines are drawn after-the-fact to delineate existing data points. Roadmap channels are fixed and can be drawn immediately, within seconds in the case of intraday data, after the completion of a single price bar. That this phenomenon occurs more often than not is fairly convincing evidence that even such complex events as hugely participated auctions may be explainable by a few simple rules.

We often say that Roadmap Charts self-define the trend because if the selected bar is indeed a trend-changing pivot point the channels will contain all (or nearly all) future price movement in that time frame for the life of the trend. Roadmap Charts can be constructed for any ticker in any time frame. The principles of construction remain the same although the quirkiness of certain pricing data, such as low-price stocks, decimal currencies, and bonds in 32nds, can present some scaling challenges. Our book Trading the Square of Nine with a Pencil and a Calculator goes well beyond Roadmap Charts and tells you how to easily convert price and time into degrees of a circle, and the five different ways to square price and time for any ticker in any time frame. Review the Roadmap Charts. You have enough information to understand what we mean by "45 degree grid" because all our S&P charts are drawn in multiples or proportions of 90 degrees. You can use other grid sizes as in this example but we believe that consistency pays off once you become comfortable with the natural rhythm of a particular ticker. A perfect complement to the Square of Nine techniques we describe in our book is the displaced moving average technique for projecting price and time that we tell you about in our book J.M. Hurst Cycle Trading Without the Rocket Math.

source : http://www.tradingfives.com

Finding the Time to Trade ...

By: Solomon Thallon
The element of Time in trading has been, and continues to be, a leading subject for most traders to study throughout their trading career. Gann's secret Time Factor has sent a lot of traders on a 'wild goose chase' through time. Expansions and contractions of Time Ranges have also sent a few traders into a studying frenzy using all sorts of Time analysis tools.

The Fibonacci Arc, Gann's Square of 9 and for some very game traders, the timing of the movements of planets as they orbit the Sun.
And then there is the problem of choosing a Time Frame to trade; intraday, daily, weekly, monthly or yearly charts? What Time do you want to trade? The SPI opens in Sydney at 9:50am, and a few minutes later the Nikkei opens for trading in Singapore. The Hong Kong and Taiwan markets are other exchanges that are open during the Australian trading day. If you are fortunate enough to make it to the trading screen during your working day, you will find plenty of trades available if you have selected an intraday Time Frame. For those that can't make it to the screen through the day, there is the German DAX that opens at around 4:30 in the afternoon, and many other tradable instruments available on European exchanges. For late night traders there are the US markets. So really, if you want to trade 24 hrs a day, the global markets can facilitate this.

Most traders are not intraday traders. Here in Australia, Intraday traders represent as few as 1 or 2% of all traders. Most of Australia's traders are trading using daily charts as their minor time frame to determine the trend. That's a good start, as long as we know that the trend grows from daily to weekly and so on.

The difference between an intraday trader and a daily trader is Time; the length of time that a trader spends in a trade. Apart from some obvious money management differences, such as stop losses and lot sizes, the short- term trader and long-term trader have much in common. But length of time in a trade is a very significant thing. It may seem easier to make a trading decision and act on it once a week as opposed to 4 or five times a day. Indeed many intraday traders describe the use of daily charts as a form of retirement in comparison with active intraday trading.

Some long-term traders may only trade once a month to get on to a big move. But when they do trade they trade intraday 4 or 5 times in a day. This way they are put into a trade that may last days or weeks. Depending on the number of markets you choose to look at this way, intraday trading can become a full time job.

Most traders have software that draws the price movement of the markets that the trader is watching. However, I still know of traders that are spending all their time drawing charts, leaving very little or no time at all to develop their trading skill. These chartists become expert market analysts, leaving the trading to those with the facility to study the charts and make trading decisions daily. With a simple spreadsheet these traders can manage their time and trades with more than adequate efficiently.

Trading is an activity that, once started, cannot be left alone. Whether you pay a broker to manage your stops or whether you are managing your own trades, the market is active all day everyday. So, unless you are trading for long term-profits, the job of trading is unlikely to afford you the freedom that you might expect as its result. All of these things take a little time to work out. Most aspects of trading are exciting enough in the beginning to warrant 100% time commitment. It isn't until you need to take a break that the real responsibilities of the job at hand become apparent. It is important not to be in a rush, to take your time and enjoy the journey. Study Gann, Fibonacci, Elliot, even the planets, whatever intrigues you. While you may come to enjoy a new lifestyle, it will be the hard work and expert analysis that demands much of your time and energy and that will bring you your rewards.

Happy trading,
Solomon Thallon
HotTrader, Australia
source : http://www.afsd.com.au

A Change in Trend is a Traders Best Friend ...

By: Solomon Thallon
You've all heard the cliches, "trade with the trend", or, "the trend is your friend". Sometimes a lot easier said than done. Was there ever a time that all you have ever wanted to know was "what is the trend?"

There are plenty of technical indicators that you can overlay onto your charts, be it your bar charts, candlesticks, you name it, so many in fact I won't even start trying to name them all. However, essentially what we are looking for is a trade. And if we are told to trade with the trend then we need to find the trend so as to trade with it. OK. But what trend are we looking for? Are we looking for the trend of your friend? Or perhaps the trend of the brokers tips that are coming in through on the fax? Well, really, what we should be looking for is the Trend of PRICE. Have you read the William Gann book "How to Make Profits in Commodities"? In this book Gann tells us "Price tells the Trend".

William Gann was a swing trader through and through. "the study of swings in active stocks will convince a (trader) that far greater profits can be made in swing trading than in any other way of trading". "…swing trading…", mmm. "…far greater profits than in other way of trading…", I'd like to see that.
Have a look at this chart of MIM.
Insert MIM chart here.

Note the Triple Bottom at the end of the bear campaign. These Triple Bottoms are a good indicator of a change in trend. Here's what Gann had to say about these Triple Bottoms. "A Triple Bottom is the most important…you will find that the greatest advances start form a Triple Bottom…" The longer the time that occurs between these bottoms indicate a greater importance of the campaign that lies ahead.

The idea here, looking at the MIM chart, is to confirm a change in trend from the bear campaign to the bull campaign as close to the bottom, or Triple Bottom, as possible. Let's study the chart closely. You will see that after the third bottom of the Triple Bottom the swing chart makes a higher swing top, (note *1). This is your first indication that the trend is turning. Now, "…the safest buying point is on a secondary reaction…" Gann. A secondary reaction is, in this case, a higher bottom to the Triple Bottom, (note*2).

What's important to remember is that the earlier you get onto the swing the more you'll make and the less you'll risk. HotTrader clearly defines these entry points. I have noticed that two days after beginning to write this article MIM has gone on to continue its uptrend. MIM has now broken above its previous weekly swing tops, which is a good sign.

Happy trading,

Solomon Thallon
HotTrader, Australia
source : http://www.afsd.com.au

Knowing Which Time Periods To Trade ...

By: Solomon Thallon
You should always figure the time from any top or high level to the next top or high point. Also figure the time from any low level to the next low level. Then figure the time from a low level to a high level and the time from the last high level down to the low level.

By doing this, you will know when time periods balance or come out about the same as a previous move. This is balancing of time. By knowing these dates and prices, it will help you to determine the duration of the next move. The longer the period of time that elapses before a previous high level is crossed or a previous low level is broken, the greater the advance or decline which follows.

PRICE SWINGS OVERBALANCED
When prices have advanced for a considerable period of time and have made several reverse swings, the first time a reverse swing or reaction exceeds the previous downswing, it is an indication that the trend is changing. But never consider that the trend has definitely changed until the time period has overbalanced. Example: If prices have been advancing for a considerable time and there have been several reactions running 5 to 7 days, then a downswing starts and runs more than 7 days, it is an indication that the trend is changing, at least temporarily. If the price reaction had also overbalanced, then it would be a definite indication of a change in trend, either minor or major.

In a declining market, keep account of all the rallies and how many cents the market has rallied from time to time and also record the time period of each rally; then when the low is reached and the advance exceeds the previous rallies in a bear Bear Market, it is an indication that both price and time are overbalanced and the trend is changing.

Remember that all rules work best when markets are very active and near extreme high or extreme low levels. Changes in trend which occur between extreme high or low do not mean as much as a reversal when prices are near extreme high or low and are very active.
Happy trading,
Solomon Thallon
HotTrader, Australia

source : http://www.afsd.com.au/

Time , Turns Trend ...

By: Solomon Thallon
"TIME is the most important factor of all and not until sufficient TIME has expired does any big move start up or down. When TIME is up, price movement will start and large volume will begin, either up or down."
W.D Gann

I know about the use of equal ranges when it comes to comparing price ranges with previous price ranges. I have learned about this equal range business from many traders. We can all witness it from time to time. And yes, it does seem to be when I am observing the markets movements. Unfortunately I don't know which range is going to make it to the 100% level of the previous range. The market might make it half way, or it might even trade right through the 100% level like a hot knife through butter, easily. However, there some good uses for the study of price ranges, in particular the retracement levels. I am sure we all love a 50% retracement to be at the beginning of our trend.

What I have been noticing lately, well, actually I noticed this a long time ago but haven't looked at it as seriously as I am now, is the ranges of TIME that the market trades in. Let's forget about price for a while and look at the ranges in time that are clear and evident in the market. Let's look at the Australian SPI for example.

You will discover in the following TIME chart that the high of 3373 made on the 10th of July is in fact when the TIME started to turn the trend. Compare this TIME chart with the PRICE chart and you will see two completely different pictures.

In the TIME chart the high of 3376 made on the 3rd of October was in fact a DOUBLE TOP in TIME with the 3373 high made on the 10th of July. You will also see that the high of 3414 made on the 7th of November is in fact a LOWER TOP in TIME to that of the 3376 and 3373 highs.

TIME CHART

PRICE CHART

Happy trading,
Solomon Thallon
HotTrader, Australia

source : http://www.afsd.com.au/

Trend Changes and Market Entries , According to W. D. Gann ...

By: Terry Ashman
W.D Gann is considered a master trader. Many of his techniques are esoteric but a number of gems are to be found in his courses and books. Here we will look at a number of Gann's rules for determining a trend change, and market entry rules that Gann derives from these rules.
ll charts created with HotTrader Software.

We are going to start with Gann's bear market "Short" entries first. These principles work with many markets including stocks and commodities, but we will use stocks in these illustrations.
"Going from a Bull to Bear market" - Gann says ...

In "How to Make Profits in Commodities", W.D Gann says ...

"SECONDARY RALLY OR LOWER TOP. After a prolonged advance when wheat or any commodity reached final high and the Bull campaign is over, there is usually a short severe decline, lasting anywhere from 1 to 2 and possibly 3 weeks or months. After the first sharp decline, the market may remain in a narrow trading range for 10 days or 2 or 3 weeks, in some cases even longer."

"After that, there is a SECONDARY RALLY, sometimes getting up near the OLD TOP and sometimes not reaching it by many points. Going over past records you will find that a market seldom fails to have this SECONDARY RALLY. When this SECONDARY RALLY comes, especially after the TREND has TURNED DOWN, it is the safest rally on which to SELL SHORT, because the decline is faster from that time on and rallies smaller."

Below is an example of this on ANZ Weekly chart. Note that this picture exactly fits Gann's description - a break of the uptrend, then a large secondary rally followed by a reasonably fast bear market decline with smaller rallies. (In order to effectively sell short ANZ, you would have to have bought put options.)

A further point that Gann raises is this ... "Sell after the first decline exceeds the greatest reaction in the preceding Bull Campaign or the last reaction before the final top" (W.D.Gann Stock Market Course).
For an explanation of this,
refer to the chart and commentary below ...

The size of reactions 1, 2, 3, 4 and 5 are marked with white lines. Reactions 1 to 4 occurred during the bull market phase. Reaction 5 is the first decline that exceeds the greatest reaction in the preceding bull campaign AND Reaction 5 exceeds the last big reaction before the final top (reaction 4) AND Reaction 5 breaks the long term uptrend. (We've used a normal trend line to mark this, not the break of a swing point. This is not what Gann taught but it is an alternative method that can be used when you become skilled at recognising the trend channel.)

Places to Sell ...
Gann says that the safest place to sell is near, that is, just after, the top of the secondary rally - assuming you can pick this- In the W.D.Gann Stock Market Course, Gann Writes ... ".SAFEST SELLING POINT
Sell on a secondary rally after a stock has broken the previous bottoms of several weeks (Sell Point 2 just after "Top of Secondary Rally" in the picture above) or has broken the bottom of the last reaction, turning trend down. (Sell Point 1) This secondary rally nearly always comes after the first sharp decline in the first section of a Bear Campaign."
and ...
"Sell after the first decline exceeds the greatest reaction in the preceding Bull Campaign or the last reaction before the final top." (Sell Point 1).

Important Points ...
(1) If you are initiating new positions, that is, you are selling short or buying put options, you must first determine your risk before entering the trade. Sell Point 1 may require a stop above swing point 5. This stop is a fair distance away in this example and may be too big for your account size or may cause a severe reduction in value of a put option if the market went this far against it. If this is the case you do not take that trade.
(2) Sell Point 1 in this case could be used for exiting a long position, but not initiating a new short position if the risk was too great, considering where you would put your stop - above point 5 top. In other examples Sell Point 1 can be good for initiating a short position.
(3) Gann considers Sell Point 2 to be the safest, with a stop above the top of the secondary rally, although this sell point can be difficult to define and is actually not used in his standard swing trading method. There are methods which can be used to define it some of the time, which we will look at in the screen movies.
(4) Sell point 3 is used in Gann's swing chart trading method and can be used subject to you being able to define a point where you would exit the trade with a stop if the trade goes against you. Gann says put a stop above the secondary rally.
Further example ...Study this carefully ..Acacia Resources Weekly with 2 Bar Hotswing..

Explanation ...The market falls, going lower than swing bottom 3, and the fall from swing top 4 to swing bottom 5 is larger than the range from swing top 2 to swing bottom 3, which is the last and largest reaction of the preceding bull campaign. The fall below swing bottom 3 "officially" turns the trend down based on Gann's rules so we are now looking for the "seconadary rally". Market does a "Secondary Rally" making swing top 6. which is quite a bit lower than swing top 4. Gann says that the secondary rally sometimes gets up near the old top (4) and sometimes does not reach it by many points. In this case it didn't reach it by many points indicating potential weakness, which was bourne out by the subsequent bear market. Gann's rules ...

Entry Point 1 - Sell if long and sell short as market goes under swing bottom 3 subject to the risk being acceptable if you put you stop above swing top 4.
Entry Point 2 - Sell Short as top of secondary rally turns down (swing top 6). Swing top 6 is a bit above swing bottom 3 (remember "Support and Resistance in Trends").
Entry Point 3 - Sell short as the market goes below swing bottom 5, subject to you being able to define a suitable stop point - a tick or two above swing top 6.
Here is what it looks like on a swing chart ...Carefully go through the preceding explanation and relate it to the swing chart.

Places to Buy ...
On page 35 of the W.D.Gann Stock Market Course, Gann says ...
"SAFEST BUYING POINT Buy on a secondary reaction after a stock has crossed (above) previous weekly tops and the advance exceeded the greatest rally on the way down from the top."
Example.

Explanation ...
Swing tops 4, 6 and 8 are bear market tops because they are lower than previous swing tops. Market then goes above swing top 8, falls back making swing top 10, rises to make swing bottom 11. Swing top 10 is the "Rally" and swing bottom 11 is the secondary reaction.
The advance from bottom 9 to top 10 exceeded the size of rallies 3 to 4, 5 to 6, and 7 to 8. (I haven't counted 1 to 2).

Entry Point 1 - Buy as market goes above swing top 8, stop under swing bottom 9.
Entry Point 2 - Buy near the bottom of the secondary reaction (11) if you could pick it - it's around the price of top 8 in this example - (remember "Support and Resistance in Trends"). Entry Point 3 - Buy as the market goes above swing top 10 with a stop under swing bottom 11. That is, you buy on stop a tick or two above swing top 10 with a sell stop a tick or two below swing bottom 11. This would actually have been a good buy because a buy just above the top of swing top 10 with a sell stop under swing bottom 11 would have presented little risk because swing bottom 11 is close to swing top 10.
Here is what it looks like on a swing chart .Entry Point 3 with its stop, is marked.

Terry Ashman
HotTrader, Australia
source : http://www.afsd.com.au/

Gann Grid

Gann Grid represents trends built at the angle of 45 degrees (Gann Lines). According to Gann’s concepts, a line having a slope of forty-five degrees represents a long-term trendline (ascending or descending). While prices are above the ascending line, the market holds bull direction. If prices hold below descending line, the market is characterized as a bear one. Intersection of the a Gann Line usually signals of breaking the basic trend. When prices go down to this line during an ascending trend, time and price become fully balanced. The further intersection of Gann Lines is an evidence of breaking of this balance and possible change of the trend.

To build a Gann Grid, it is necessary to define two points determining sizes of cells.

source : www.metaquotes.net

Gann Line

Gann Line represents a line drawn at the angle of 45 degrees. This line is also called "one to one" (1x1) what means one change of the price within one unit of time.

According to Gann’s concept, the line having the slope of forty-five degrees represents a long-term trendline (ascending or descending). While prices are above the ascending line, the market holds bull directions. If prices hold below the descending line, the market is characterized as a bear one. Intersection of Gann Line usually signals of the basic trend break. When prices go down to this line during an ascending trend, time and price become fully balanced. The further intersection of Gann Line is the evidence of breaking of this balance and possible changing the trend.

Gann Line - Line Studies, Technical Analysis

It is necessary to define two points for building a Gann Line.
source : www.metaquotes.net

The Remarkable W.D. Gann

Article by John L. Gann Jr.,
grandson of W.D. Gann

If you had been a businessman traveling across Texas in 1891, you might have bought a newspaper and a couple of cigars from a tall, lanky 13-year-old selling them on your train. And as you talked with your fellow travelers about investments, you might have noticed the youth eavesdropping intently on your conversation.

If you had asked him, the boy might have told you his name was Willy and, yes, he was interested in commodities. His dad was a farmer in Angelina County, and just about everyone he knew was as well. They were all concerned about the price their cotton would bring. And had you inquired whether young Willy also wanted to till the East Texas soil when he got older, he might have said no, he didn't think so: he wanted to be a businessman. "Well, good luck, young Willy," you might have said. "Maybe you'll have your own business some day, maybe you'll even be famous. Who knows? No one can predict the future." The young eavesdropper going up and down the aisles of that train was William Delbert Gann. Was it really true, he might have wondered, that no one can predict the future?

W. D Gann was born on a farm some seven miles outside of Lufkin, Texas, on June 6, 1878. He was the firstborn of 11 children two girls and eight boys of Sam Houston Gann and Susan R. Gann. The Ganns lived in a too small house with no indoor plumbing and with not much of anything else. They were poor, and young Willy walked the seven miles into Lufkin for three years to go to school.

But the work he could do on the farm was more important to the family, so W. D. never even graduated from grammar school or attended high school. As the eldest boy, he had a special responsibility, and those years working on the farm may have been the beginning of his lifelong dedication to hard work. His religious upbringing as a Baptist may also have had something to do with it, for his faith stayed with him throughout his life as well.

A few years later W.D. worked in a brokerage in Texarkana and attended business school at night. He married Rena May Smith, and two daughters, Macie and Nora, were born in the first few years of the new twentieth century. W.D. made the fateful move to New York City in 1903 at the age of 25.

Working most likely at a major Wall Street brokerage, W.D. made other changes in his life as well. He divorced his Texas bride and in 1908 at the age of 30 married a 19-year-old colleen named Sarah Hannify. W.D. and Sadie had two children--Velma, born in 1909 and W.D.'s only son, John, who arrived six years later. In addition, Macie and Nora came to live with their father and were raised in New York by their Irish stepmother.

During the First World War the family moved from Manhattan to Brooklyn first to Bay Ridge, then to Flatbush. W. D. reportedly predicted the November 9, 1918 abdication of the Kaiser and the end of the war. But it was after the armistice that the fortunes of the Ganns of Brooklyn took their most dramatic turn. The W. D. that traders know today emerged in the Roaring Twenties.

In 1919 at the age of 41, W. D. Gann quit his job and went out on his own. He spent the rest of his life building his own business. He began publishing a daily market letter, the Supply and Demand Letter. The letter covered both stocks and commodities and provided its readers with annual forecasts. Forecasting was an activity with which W.D. had become fascinated. The young business prospered, and three years later W.D. Gann became a homeowner, buying a small house on Fenimore Street in his adopted home of Brooklyn. The market letter led to more ambitious publishing. In 1924 W.D.'s first book, Truth of the Stock Tape , was published.

A pioneering work on chart reading, it is still regarded by some as the best book ever written on the subject. An individualist and ambitious hard worker, W.D. self-published Truth through his new Financial Guardian Publishing Company. He personally wrote his own ads to market it and negotiated with bookstores to carry it. 'Truth was praised by The Wall Street Journal and sold well for years. Some consider it the best of his many books. For a first effort it was a significant accomplishment.

His market forecasts during the twenties were reportedly 85 percent accurate. But W. D. didn't confine his prognostications to prices. It was widely reported he predicted the elections of Wilson and Harding and, indeed, of every president since 1904. At age 49, W. D. Gann wrote what is perhaps his most unusual book, the 1927 Tunnel Through the Air . It is a prophetic work of fiction, not a genre every Wall Street analyst dabbles in. But W.D. Gann was one of a kind. The book is perhaps best known for having predicted that attack on the United States by Japan and an air war between the two powers. Though Tunnel may have had little to offer investors, it was well-publicized and enhanced its author's growing reputation.

The market in the 1920's seemed to be defying the law of gravity, but W.D. Gann didn't think it could last forever. In his forecast for 1929, he predicted the market would hit new highs until early April, then experience a sharp break, then resume with new highs until September 3. Then it would top and afterward would come the biggest market crash in its history. We all know what happened.

W. D. Gann prospered during the Depression, which he predicted would end in 1932. He acquired seats on various commodities exchanges, traded for his own account, wrote Wall Street Stock Selector in 1930 and New Stock Trend Detector in 1936. He continued making remarkably accurate forecasts as well as some less successful ones like the electoral defeat of FDR. He developed a new interest in investing in Florida real estate. He became a small-scale home-builder in Miami as well as the owner of a block of stores on the Tamiami Trail.

He also became airborne. He bought a plane in 1932 so he could fly over crop areas making observations to use in his forecasts. He hired Elinor Smith, a noted 21-year-old aviator, to fly him around. The novelty of his high-flying research--W.D. was the first to study markets in this way--helped keep him in the spotlight.

W. D. Gann's son John Gann also went into the securities business in 1936 at the age of 21. A year later he went to work for his dad until in 1941 his Uncle Sam announced he had plans for the young man in Europe. Back in Brooklyn, Sadie had health problems for some time and died at age 53 in 1942. Then after 20 years on Fenimore Street, an aging W.D. Gann moved to Miami for reasons both of health and personal preference. His How to make Profits in Commodities came out the same year.

He kept his business in New York, relying on his long-time personal secretary. In Miami he continued studying the market, trading, real estate investing, and instructing students. The next year at the age of 65, when most are thinking retirement, W.D. decided he'd get married and did, to a much younger woman.

Son John worked on W. D. Gann's business in New York briefly after the war, then left to pursue his own interests in the Industry. The two differed in their approach to the market. John L. Gann pursued a successful lifetime career with Wall Street's major brokerage housed until his passing in 1984.

The post-war years saw Gann start taking it easier. He published 45 Years in Wall Street in 1949. He sold his business to Joseph Lederer, a fellow student of the market. Around the same time he also separately sold the rights to all his books to Edward Lambert. He continued, however, to study, teach, and trade. He was made an honorary member of the International Mark Twain Society in 1950.

In 1954 he suffered a heart attack. A year later advanced stomach cancer was discovered. The doctors operated, but W. D. Gann failed to recover. He died in June, 1955, at the age of 77. He was buried with his second wife in Green-Wood Cemetery in Brooklyn at a location that looks toward Wall Street. It was a fitting location since he had studied the Street all his adult life.

In 1995, 40 years after his passing, William D. Gann is still talked about, written about, and studied avidly. It's an extraordinary testimonial to his work and one that even W.D. couldn't have predicted. Or could he? What lessons might there be in this remarkable man's life?

First is an affirmation of the American Dream. William Delbert Gann of Lufkin, Texas, started with nothing. He and his family had no money, no education, and no prospects. But less than 40-years after overhearing businessmen talk on railroad cars in Texas, W.D. Gann was known around the world.

Second, hard work pays. W. D. Gann rose early, worked late, and approached his business with great energy. Virtually all his education was self-administered. This teacher, writer, and prescient forecaster had a third-grade formal education. But he never stopped reading.

Third, unconventional thinking may have its merits. W.D. was intellectually curious to an extraordinary degree. He was unafraid of unorthodox ideas, whether in finance or in other areas of life. He wasn't always right--none of us are--but he dared to pursue a better idea.

Fourth, there may be something to that clean living business after all. A conservative Baptist, W.D. didn't smoke, drink, play cards, or dance. He was serious in demeanor and a conservative dresser, although he lightened up somewhat in his later years. He respected the value of a dollar and was prudent in his personal spending. Not every internationally acclaimed seer would continue to live in a modest house in Brooklyn.

Fifth, faith helps. W. D. Gann studied the Bible all his life. It was his Book of Books. His own last book, The Magic Word , published in 1950, strongly reflects this devotion.

And finally, the only lesson for traders I will venture to offer is W.D. Gann never stopped studying the market. Even after his forecasts happened, even after he achieved international acclaim. Although he believed in cycles, he also knew that markets are always changing and that decisions must be made based on today's conditions, not yesterday's.

W.D. might have rested on his laurels. But he kept studying and seeking greater understanding. If he couldn't afford to stop, can any trader afford to do so?

John L. Gann, Jr., is the grandson of William D. Gann. Most of the information in this article comes from W.D. Gann's son, the late John L. Gann, to whom this article is dedicated. The information herein is believed to be correct but no assurance of accuracy is offered.

31	32	33	34	35	36	37
30	13	14	15	16	17	38
29	12	13	4	5	18	39
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27	10	9	8	7	20	41
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31	32	33	34	35	36	37
30	13	14	15	16	17	38
29	12	13	4	5	18	39
28	11	2	1	6	19	40
27	10	9	8	7	20	41
26	25	24	23	22	21	42
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