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Gann Angles
If
you've spent much time in investment circles you've heard
about Gann Theory and Gann Angles. What are they? W.D. Gann
(1878-1955) was a young stock and commodity broker in the
early 1900's. Gann was very successful at trading the markets
and early on was fairly secretive about his methods. He was
able to generally get into a move in the bottom eighth of
a trading swing and out in the top eighth. Later in his life
Gann expounded more on what principles he applied to his trading.
He stated every stock and commodity "had its own center
of gravity, mathematical points of force governed by the Laws
of Vibration". Gann used strange looking charts that
looked like a spoke bicycle wheel looked at from the side
with the hub in the middle. Central to Gann's techniques were
geometric angles in conjunction with time and price. Gann
believed that specific geometric patterns and angles had unique
characteristics that could be used to predict future price
movements.
All of Gann's logic required that
equal time and price intervals be used on charts, so that
a rise/run of 1 x 1 will always equal a 45-degree angle. Gann
believed that the ideal balance between time and price exists
when prices rise or fall at a 45-degree angle relative to
the time axis. This is also called a 1 x 1 angle. Gann Angles
are drawn between a significant bottom and top (or vice versa)
at various angles. Deemed the most important by Gann, the
1 x 1 trendline signifies a bull market if prices are above
the trendline or a bear market if below. Gann felt that a
1 x 1 trendline provides major support during an up-trend
and when the trendline is broken, it signifies a major reversal
in the trend. Gann identified nine significant angles, with
the 1 x 1 being the most important. A sample of the nine angles
are represented by the 1 x 8 (82.5 degrees), 1 x 4 (75 degrees),
1 x 3 (71.25 degrees), and 6 lower angles. Gann believed trading
occurred between a pair of angles with the upper angle being
the resistance level and the lower angle providing support.
Gann developed several techniques for studying market action.
These include Gann Angles, Gann Fans, Gann Grids, and Cardinal
Squares.
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