Premium
- New York
- London
- Barcelona
- Tokyo
- Sydney
Search
0
0
The Gann Angles
Wed, May 16 2007, 10:35 GMT
by Robert W. Colby
Gann Angles: Time and Price Analysis
W.D. Gann (1878-1955) developed the use of what he called "Geometric Angles", now commonly referred to as Gann Angles, used to determine trend direction and strength, support and resistance, as well as probabilities of price reversal.
Gann was fascinated by the relation of time (T) and price (P). Gann drew his angles from all significant price pivot point highs and lows. He used just one pivot point to draw an angle that rose (or fell) at predetermined and fixed rates of speed, as follows:
T x P = n degrees 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
Where:
T is the number of units of time, graphically plotted on the horizontal x-axis.
P is the number of units of price, graphically plotted on the vertical y-axis.
x is read as "by".
n degrees specifies the slope of the Gann angle, measured in degrees.
Translating time by price into degrees assumes a square grid, where one unit of time on the x-axis takes up the same amount of horizontal space as the one unit of price on the y-axis takes up vertical space. For example, 1/16 of an inch might be set to one week of time on the horizontal x-axis, and 1/16 of an inch might be set to one dollar of price on the vertical y-axis. On such a proportionally scaled chart, the 1 x 1 geometric angle, which for every one unit of time rises one point in price, is a 45 degree angle.
Without this equality of time and price scaling, however, Gann angles stated in degrees do not work out correctly. That would not prevent correct Gann angles from being drawn on oddly proportioned grids; it would only prevent the translation of time by price angles into correctly-displayed degrees. But that would not affect the interpretation of the Gann angles if we avoid thinking in terms of degrees. Rather than thinking in terms of degrees, it is simpler to express Gann angles in terms of units of time by price.
For practical purposes, weekly Gann angles, drawn on a weekly bar chart, appear to offer the most useful perspective. Gann often said that the weekly chart was more important than the daily chart. Nevertheless, Gann angles are flexible and can be used on any time-scale, so long as the time by price proportions are correctly calculated.
Gann angles offer indications of support and resistance that may not be evident based on any other method. For example, during an up-trend, the 1 x 1 angle tends to provide major support. A major reversal is signaled when prices fall below the 1 x 1 angle. According to Gann, prices should then be expected to fall to the next angle below, the 2 x 1 angle. In other words, as one angle is penetrated, expect prices to move to and consolidate at the next angle, which is less steep.
Gann placed special emphasis on the 1 x 1 angle. On a perfectly proportioned time by price grid, in an uptrend, the 1 x 1 angle extends "northeast" at a precise 45 degree angle. This 1 x 1 angle is the most significant angle: it represents a sustainable, perfectly balanced trend, not too fast and not too slow, but just right. In a bullish uptrend, the 1 x 1 angle tends to provide major support. When this 1 x 1 angle is broken, a significant price trend reversal is signaled. The price should then drop down to test the 2 x 1 angle, below.
In a downtrend, the 1 x 1 angle extends "southeast" at a precise 45 degree angle. Eventually, after a downtrend, when price moves above and stays above the 1 x 1 angle (which is sloping down and to the right at 45 degrees), price should then make its way up to test the next, less-steep Gann angle, the declining 2 x 1 angle. An angle that provided resistance, once decisively broken, should provide support.
Furthermore, when a 1 x 1 angle crosses a horizontal line extending forward in time from a significant past pivot point price (an obvious high or low), then time and price are square relative to that past pivot point, and that is a likely time for a change in trend or an acceleration of the existing trend. Also, when a geometric angle crosses zero or another geometric angle, a trend change is likely.
Identification of the most important Gann angle is dependent of the price level of the instrument analyzed: very high and very low priced instruments will follow steeper and shallower Gann angles, respectively. In other words, the best functioning Gann angle for support and resistance depends on the price level of the instrument being analyzed.
For example, for the S&P 500 Composite Stock Price Index, a relevant support and resistance price channel was well defined by 2 x 1 weekly Gann angles from the 8/9/82 price low at 102.20 until 1995. After the 12/9/94 low at 442.88, the S&P price level quickly rose so high that the bull market trend was better defined by the rising 1 x 4 weekly Gann angles. A glance at the chart should make obvious the value of these Gann angles, which can be drawn before the fact, as soon as the user can identify a pivot point high or low. (See Robert W. Colby's book, page 285, for this chart.)
Gann also divided significant price and time ranges and previous highs and lows into eighths, and looked for support and resistance there. For example, dividing the low to high price range after a substantial upswing, the most important divisions would be 8/8 (or the high), ½ (the midpoint) and 0/8 (the low). Next most important would be 3/8 and 5/8. Expressed in decimals, 3/8 is 0.375 and 5/8 is 0.625, which are only .007 away from the Fibonacci ratios of 0.382 and 0.618.
Note: The above is an excerpt from The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill Publishing, 2003.
Published on Wed, May 16 2007, 10:35 GMT
TradingEducation.com, LLC
| 5807 Old Pasco Road, Wesley Chapel, FL 33544
http://www.tradingeducation.com/default.asp?Code=TEFXSTREET | info@tradingeducation.com
Legal disclaimer and risk disclosure
All information disseminated to you by TradingEducation.com, LLC (hereinafter “TradingEducation.com”) on or through its website (hereinafter the “Website”), or distributed to you by TradingEducation.com by any other means, comprising such information as articles, commentaries, audio presentations, webinars, eBooks, and newsletters (collectively, the “Information”) is provided for informational and educational purposes only. TradingEducation.com reserves the right to change, alter, delete or modify the Information at any time for any reason without prior notice to you. TradingEducation.com does not make solicitations, recommendations or offers to buy or sell stocks, futures, commodities, options, Forex, or any other security or investment. TradingEducation.com does not advocate the purchase or sale of any security or investment. The Information should not be construed as investment advice. TradingEducation.com is not a registered investment advisor, commodity trading advisor, broker or broker dealer. Prior to the execution of a securities, commodities, options or Forex trade, you should always consult with your broker or other financial advisor. There is a very high degree of risk involved in trading securities, commodities, futures, options and Forex. Past results of any individual trader written about or referred to in the Information are not indicative of future returns by that trader, and are not indicative of future returns which may be realized by you or others. TradingEducation.com, and its members, employees, agents, consultants, analysts, representatives, affiliates, subsidiaries, successors and assigns (hereinafter collectively, the "TradingEducation.com Indemnities") assume no responsibility or liability for your trading and investment results. The TradingEducation.com Indemnities are not responsible for any actions taken by you based upon your use of any of the Information. The TradingEducation.com Indemnities may hold positions or interests in any of the markets discussed on the Website. You should not rely solely on the Information, in making any investment or trading decision. Rather, you should do your own independent research in order to allow you to form your own opinion regarding your investments and trading decisions. You should always discuss and/or review your trading strategies and decisions with your broker or other professional advisor. The Information is obtained from sources considered by TradingEducation.com to be reliable, but the accuracy and completeness thereof are not guaranteed. The TradingEducation.com Indemnities shall not be responsible or liable for the truth, accuracy, or otherwise for the Information provided or for errors, mistakes, or omissions therein or for any delays or interruptions of the Information presented on the Website or for whatever cause. You agree to indemnify, release, defend, and hold harmless the TradingEducation.com Indemnities from and against any and all claims, liabilities, losses, causes of actions, costs, lost profits, lost opportunities, indirect, special, incidental, consequential, punitive, or any other damages whatsoever and expenses (including, without limitation, court costs and attorneys' fees) asserted against, resulting from, imposed upon or incurred by any of the TradingEducation.com Indemnities as a result of, or arising out of this Disclaimer and/or your use of the Information. Access to and use of the Website and the Information available on the Website is on an “as-is”, “as available” basis and TradingEducation.com specifically disclaims any representations or warranties, express or implied, including without limitation, any representations or warranties of merchantability or fitness for a particular purpose. The TradingEducation.com Indemnities will not be liable, either jointly or severally, to you or to any other person as a result of your access or use of the Website for indirect, consequential, special, incidental, punitive, or exemplary damages, including, without limitation, lost profits, lost savings and lost revenues (collectively, the “Excluded Damages”), whether or not characterized in negligence, tort, contract, or other theory of liability, even if TradingEducation.com has been advised of the possibility of or could have foreseen any of the Excluded Damages, and irrespective of any failure of an essential purpose of a limited remedy. If any applicable authority holds any portion of this section of this Disclaimer to be unenforceable, then the liability of the TradingEducation.com Indemnities will be limited to the fullest possible extent permitted by applicable law. You agree this paragraph constitutes a conspicuous legend. If you are located outside of the United States, information that you provide to TradingEducation.com will be sent to the United States. By signing up or registering for any of TradingEducation.com’s Information you consent to your data being sent to the United States. TradingEducation.com has no responsibility for the accuracy, completeness or availability of information provided by linked websites. Links to external websites do not constitute an endorsement by TradingEducation.com of the sponsors of such sites or the content, products, services, advertising or other promotional materials or information presented on such sites. The links on the Website may provide you with access to other websites where the trading of securities, commodities, futures, options or Forex is possible. TradingEducation.com shall not be responsible or liable with regard to any trading which may be conducted on such linked websites or any other website which may be linked to or from the Website. Information on the websites that are linked to or from the Website comes from a variety of sources. TradingEducation.com does not author, edit or monitor these websites or links. TradingEducation.com shall not be responsible or liable, directly or indirectly, for any damages or loss caused or alleged to be caused by or in connection with use of or reliance on any such content, goods or services available on such external websites. Accessing certain links on the Website may provide you with access to other websites for which TradingEducation.com assumes no responsibility of any kind for the content, availability or otherwise. The Information is the property of TradingEducation.com or its licensors and is protected by copyright and other intellectual property laws. TradingEducation.com is the owner and/or authorized user of any trademark, registered trademark and/or servicemark appearing on the Website, and is the copyright owner or licensee of the Information on the Website, unless otherwise indicated. If you make any use of the Information, except as provided for in this Disclaimer, you may violate copyright and other laws of the United States, other countries, as well as applicable state laws and may be subject to liability for such unauthorized use. TradingEducation.com does not grant any license or other authorization to you of its trademarks, registered trademarks, servicemarks, other copyrighted or copyrightable material or any other intellectual property including all Information, by including them on the Website. You are being granted a non-exclusive, non-transferable limited license that may be revoked at any time. You may display or print the Information for your personal, non-commercial use only. No portion of the Information may be reproduced in whole or in part without the prior written consent of TradingEducation.com. You are not allowed to sell, publish, distribute, retransmit or otherwise provide access to the Information to any third party. You can not create abstracts from, or display headlines or excerpts from, the Information for use on another website or service. You can not post any Information from the Website to newsgroups, mail lists or electronic bulletin boards, without TradingEducation.com’s prior written consent. TradingEducation.com reserves the right to terminate or restrict your access to the Website and its Information if, in its opinion, your use of the Website may violate any laws, infringe upon another person's or entity’s rights or violate any of the Terms and Conditions of this Disclaimer. TradingEducation.com may deny you future access to all or part of the Information without prior notice if you engage in any conduct or activities that TradingEducation.com, in its sole discretion, believes violate any of these Terms and Conditions, violates the rights of TradingEducation.com, or are otherwise inappropriate for continued access. By navigating the Website and viewing or downloading any of the Information presented on the Website or distributed to you by TradingEducation.com in any manner, you represent that you have read and understand this Disclaimer and agree to be bound by all of the Terms and Conditions contained herein.Interested in forex trading? forex brokerage firms!
FXstreet.com will give you a 3 months membership as soon as minimum rebates have been generated (€150 for private trader/ €300 for corporate trader)
[Read Premium full description]
Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management.
Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
©2008 "FXstreet.com. The Forex Market" All Rights Reserved.