What is Gann Theory? How to apply the Gann Theory Strategy? (2024)

FAQs

What is Gann Theory? How to apply the Gann Theory Strategy? ›

Gann states that price and time are at their best when they rise or fall at a 45 degree angle relative to each other. To draw Gann Angles at different angles, you need to have a significant top or bottom. If prices are above the trendline, it is a bullish market. A bear market if they are below.

By connecting all price points on the Gann's chart, you can calculate the Gann angles. As per the Gann theory, the stock price and time are at their best when they rise or fall at a relative angle of 45 degrees. This angle can draw a trendline on your stock analysis chart.

Gann's equation goes as follows: 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.

There are certain basic ratios that are held. For example, if the price trend is up for 9 days at a stretch then it is likely to correct for 5 days at a stretch (Ratio of 9:5). Double bottoms and triple bottoms on a monthly chart after a minimum gap of 6 months is an indication of a fresh uptrend.

The most important angel angle in the Gann theory is 1:1. A 1:1 angle is considered to have a slope of 45 degrees. It represents a line that moves a unit vertically for every unit change in the horizontal direction, indicating the relationship between the price and time of the asset on the chart.

Gann Theory is the study of the links between pattern, price, and time and how the market is impacted by these linkages. In predicting the future movement of the market, it considers pattern, price, and time as the three main factors.

Gann—are used in predicting support and resistance levels, as well as predict tops, bottoms, and future price moves. 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.

Gann theory distinguishes four major levels of support: G1, G2, G3, and G4. G1 is the level of 50% retracement from the all-time High, which might be indicative of future upward movement renewal. If that doesn't hold, look for G2 level which is the midpoint between the all-time High and all-time Low.

Wait at least 1 hour after the market opens. Just note the current market price or the average traded price of any security and put that in the input field in the calculator and click calculate. This will calculate the GANN angles relative to the last traded price or the average traded price.

Gann trading strategy can still be used and, if applied correctly, can predict the movement of an asset up to 90% accuracy. W. D. Gann believed that the market follows a natural time cycle.

What is the Gann's rule of 4? ›

Gann. He called this pattern his “Rule of Four.” Simply stated, the Rule applies when we have four consecutive touch points on a trend line or Gann Angle. The fourth touch point is make-or-break.

The important time cycle is square of 52 on weekly charts. Use it for high/low as well as on the points which start at 90-day cycle. Also, two squares (or a cycle of two years) can be used. Inner and outer squares should also be checked when price hovers within the same circle.

The Gann theory predicts the price movements with the help of a series of angles. The angles are drawn at different price points. The Gann angles represent the past, present, and future characteristics of a stock price. In fact, the calculation of Gann angles is done after connecting the price points on the charts.

Gann angles are useful to us for finding momentum and trends. We particularly like these angles for swing trading and longer-term trend trading. You can use Gann angles on any chart time frame. However, they are more effective on longer-term charts.

The Gann Spiral, more commonly known as the Square of 9 is one of the most well known tools that Gann used. Today, it is most commonly used to find possible support and resistance levels, and possible reversals in time.