W.D. Gann - Technical Analysis
William D. Gann developed a number of unique technical analysis methods for chart price movements.
Gann payed most attention to angles reflecting the relation between the time and the price. Gann believed that certain geometrical figures and angles have specific advantages when being used for forecasting future price movements.
Gann recognised there was an ideal relationship between time and price and if the price rose or fell at an angle of 45 degrees to the time scale. This angle is called as 1x1 and corresponds with each unit of price for each unit of time.
The biggest advantage of using the Gann analysis rules, that he bestows upon his students, is that the system is the only one I know which allows ‘advance’ planning of trades and is not laggard in nature.
Gann technical analysis allows the investor to isolate ‘decision’ areas both above and below the current value of the analysed investment. The levels can be identified weeks, months or even years in advance! If and when these pre-determined areas are reached, a buy, sell or hold decision process based upon the daily moves is followed..
However, there is no certainty that the levels will be reached :
- 1- Never anticipate that the signal will be a buy or a sell.
- 2- A pragmatic approach at this point is vital.
- 3- Let the market tell you what to do.
One of the most important discoveries Gann made was that there is a relationship between every low price and every future high price. Also, for every high price there is a relationship to every future low price.
If this claim is true, then by studying historical data the investor can establish all important future highs and lows. That this is possible is clearly demonstrated by the weekly variant of which was published in the Euromoney training manuals early in 1992 and which isolated nine months in advance the exact top of the British Pound’s rally against the US Dollar.
Gann's Technical Approach
This approach introduces a procedure which leads the investor through a series of tests and then ultimately provides the levels at which to consider buying, selling or shorting. It would be beneficial if you were to take each step at a time in a logical fashion rather than skip from one step to another in a haphazard way.
A Word of Warning!
Due to the nature of Gann’s techniques it is vital that you use accurate and regularly corrected data.
- 1- Traded prices must be used, not quoted prices.
- 2- As much back data as possible should be to hand with an absolute minimum of five years.
- 3- Do not assume that data from the providers is necessarily accurate. Check it out for Gann will not work on inaccurate data.
The Major Gann Levels
Gann considered one of his greatest discoveries to be the calculable relationship between historic highs and lows and future levels of intermediate highs and lows. I call these the MAJOR Gann levels, being the first levels to place on the chart.
(The levels are established by referring to the historical highs and lows, after adjustments for rights and scrip issues.)
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