The Basis of Gann Theory

The Law of Vibration
During an interview Gann once revealed that the secret to his trading was understanding the vibration of a commodity. The “Law of Vibration,” as he called it, explains the cause of the periodic recurrence of the rise and fall in commodities. The following excerpts are from an article Gann wrote that covers this topic in greater detail.

I soon began to note the periodical recurrence of the rise and fall in stocks and commodities. This led me to conclude that natural law was the basis of market movements. After exhaustive researches and investigations of the know sciences, I discovered that the Law of Vibration enables me to accurately determine the exact points to which stocks or commodities should rise and fall within a given time.

The working out of this law determines the cause and predicts the effect long before the Street is aware of either. Most speculators can testify to the fact that it is looking at the effect and ignoring the cause that has produced their losses.

• It is impossible here to give an adequate idea of the Law of Vibration as I apply it to the markets, however, the layman may be able to grasp some of the principles when I state that the Law of Vibration is the fundamental law upon which wireless telegraphy, wireless telephone and phonographs are based. Without the existence of this law the above inventions would have been impossible.

• In going over the history of markets and the great mass of related statistics, it soon becomes apparent that certain laws govern the changes and variations in the value of stocks and there exists a periodic or cyclic law, which is at the back of all these movements. Observation has shown that there are regular periods of intense activity on on the Exchange followed by periods of inactivity. Mr. Henry Hall, in his recent book, devoted much space to ‘Cycles of Prosperity and Depression’ which he found recurring at regular intervals of time. The law which I have applied will not only give these long cycles or swings, but the daily and even hourly movements of stocks. By knowing the exact vibration of each individual stock I am able to determine at what point each will receive support and at what point the greatest resistance is to be met.

• Those in close touch with the markets have noticed the phenomena of ebb and flow, or rise and fall in the value of stocks. At certain times a stock becomes intensely active, large transactions being made in it; at other times this same stock will become practically stationary or inactive with a very small volume of sales. I have found that the Law of Vibration governs and controls these conditions. I have also found that certain phases of this law govern the rise in a stock and entirely different rules operate on the decline.

• I have found that in the stock itself exists its harmonic or inharmonic relationship to the driving power or force behind it. The secret of all its activity is therefore apparent. By my method I can determine the vibration of each stock and by also taking certain time values into consideration I can in the majority of cases tell exactly what the stock will do under given conditions.

• The power to determine the trend of the market is due to my knowledge of the characteristics of each individual stock and a certain grouping of different stocks under their proper rates of vibration. Stocks are like electrons, atoms, and molecules, which hold persistently to their own individuality in response to the fundamental Law of Vibration. Science teaches “that an original impulse of any kind finally resolves itself into periodic or rhythmical motion,” also, “just as the pendulum returns again in its swing, just as the moon returns in its orbit, just as the advancing year ever brings the rose to spring, so do the properties of the elements periodically recur as the weight of the atoms rises.”

• From my exhaustive investigations, studies and applied tests, I find that not only do the various stocks vibrate; but that the driving forces controlling the stocks are also in the state of vibration. These vibratory forces can only be known by the movements they generate on the stocks and their values in the market. Since all great swings or movements of the market are cyclic they act in accordance with the periodic law.

• If we wish to avert failure in speculation we must deal with causes. Everything in existence is based on exact proportion and perfect relationship. There is no chance in nature, because mathematical principles of the highest order lie at the foundation of all things. Faraday said: “There is nothing in the Universe but mathematical points of force.”

• Through the Law of Vibration every stock in the market moves in its own distinctive sphere of activities, as to intensity, volume and direction; all the essential qualities of its evolution are characterized in its own rate of vibration. Stocks, like atoms, are really centers of energies, therefore they are controlled mathematically. Stocks create their own field of action and power; power to attract and repel, which in principle explains why certain stocks at times lead the market and “turn dead” at other times. Thus to speculate scientifically it is absolutely necessary to follow natural law.

• After years of patient study I have proven to my entire satisfaction as well as demonstrated to others that vibration explains every possible phase and condition of the market.

This information helps us to understand a little more about the type of research W. D. Gann did to develop his analysis technique. The article should be read as background material, as it is beyond the scope of the material that is covered in this book. In this book I accept Gann’s basis for market movement and that the markets are being influenced by the Law of Vibration. I do not wish to explain how to prove the existence of the Law of Vibration, but find it more useful to write about how to use the techniques Gann used to trade the market. For example, I have assumed that cycles and vibrations exist and, at this point, do not intend to prove either their existence or the existence of their influence on the movement of stock and commodity prices.

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[1] All quotations in this chapter about the Master Egg Course are from the W.D. Gann Commodities Course, and are reprinted with permission per Nikki Jones of Lambert-Gann Publishing Co., Box O, Pomeroy, Washington 99347
[2] As reprinted in the W. D. Gann Technical Review, vol. 1, no. 11, p.1, November 12, 1982
[3] From a missive on Gann letterhead with the title, “Soy Beans: Price Resistance Levels,” which originally came with the W. D. Gann Commodities Course, but which was left out of later reprints of the course.