Are you new to the stock market and wondering what is ‘Gann Theory’?
Don’t worry! I am here to help you out. Today, I am going to discuss a more than a century-old trading strategy. This strategy involves the use of Gann Theory and I am going to tell you all about it from A through Z.
What is Gann Theory?
Gann theory was a concept developed by William D. Gann in the 1900s. He was a successful trader of his time and believed that the change in the stock price has an angle to it. In other words, an asset moves in angles. He observed that the change in price was related to the natural geometric shapes prevailing and predicted the future movement of price with relation to time for any stock. This is why the Gann theory is also known as the ‘Gann Angle theory’.
Gann trading strategy is still in use and if correctly applied, can predict an asset’s movement up to at least 90% accuracy. W. D. Gann was of the opinion that there exists a time cycle in nature that applies to the market as well. The discovery of his theory was based on natural geometric shapes, astrology, astronomy, and ancient mathematics.
According to Gann theory, the angles and patterns formed by an asset in the market can be used to predict the future movement of the price.
Who was William Delbert Gann?
William Delbert Gann or W. D. Gann or William D. Gann was a finance trader and astrologer who developed various technical analysis tools such as the Gann angles. He was also fond of sharing his knowledge in the form of writing and hence authored numerous books and courses on trading. He is known to author the first-ever book to be written on the share market named “The Truth of Stock Tape”. He made over $50 million before he died in 1950 and ruled Wall Street for over 50 years. He had a trading accuracy of over 92%.
Moreover, he invented the spiral chart often known as the ‘Square of Nine’ chart.
What is the ‘Spiral Chart’ or ‘Square of Nine’ chart?
This chart is used to apply the Gann trading strategy or Gann theory. It is a nine by nine matrix of numbers from 1 to 81 arranged in a counter-clockwise spiral. The number 1 is placed in the center and the numbers after it are placed in a spiral out from it. The picture below will give you a clear view.
Here you can observe that the numbers are moving in an anti-clockwise spiral in an increasing order starting from 1 in the center. Once a spiral/cycle/bracket gets completed, it moves on to the next one. For example, 2-3-4-5-6-7-8-9 are in one bracket after which the number 10 gets placed in the next bracket.
This Gann indicator has cardinal and ordinal numbers. Cardinal numbers are the ones in Blue and ordinal numbers are the ones in Yellow. You’ll also notice that the ordinal numbers are square numbers. W. D. Gann explained that any number that falls on any of these numbers works as strong support or resistance depending on the stock.
An interesting fact about the numbers present in the Gann square is that they follow a certain harmonic pattern. For example, the number 52 has the number 27 next to it. This can be calculated as follows
- Square root of 52 = 7.2
- 2 – 2 = 5.2
- Square of 5.2 = 27
Where 27 is the number next to 52! This applies to all numbers in the Gann indicator.
Recommended: Peter Lynch’s Formulas for Valuing a Stock’s Growth
Why the number 9?
D. Gann believed that the number ‘9’ was unique and had something special. He believed that 9 is a crucial number and is used to measure all things. The number is the largest and last single-digit number. It is also evident that if you multiply any number by 9, and then add up the digits the sum would be 9.
For example, 4 x 9 = 36 ⇒ 3 + 6 = 9
6 x 9 = 54 ⇒ 5 + 4 = 9
What are Gann Angles?
Every price movement has an angle to it which can be explained by the Gann square.
Key important angle numbers are as follows:
- 0°/ 360° : 2, 11, 28, 53 ⇒ 4n2-3n+1
- 45° : 3, 13, 31, 57 ⇒ 4n2-2n+1
- 90° : 4, 15, 34, 61 ⇒ 4n2-n+1
- 135° : 5, 17, 37, 65 ⇒ 4n2+1
- 180° : 6, 19, 40, 69 ⇒ 4n2+n+1
Note: These angles are counted counterclockwise
How is the Gann Indicator used?
Gann indicators are easy to use and can be an easy trading strategy. It is somewhat similar to the Fibonacci levels. If you don’t know about the Fibonacci series don’t worry.
A Gann angle is a line (a diagonal, generally) that moves at a uniform rate. It might be sometimes confused with a trendline, but trendlines do not move at a uniform rate. Higher bottoms indicate an uptrend and lower tops indicate a downtrend. Uptrends are made after connecting bottoms and downtrends are made after connecting tops of the price. With the help of the Gann angle, a trader can set targets and trade accordingly. Gann trading strategy can be used to predict support and resistance levels of an asset with the help of Gann angles.
When a certain Gann angle is reached (or angle level is broken), it tries to reach the next angle. These angles are marked generally as 1X2, 1X1, and 2X1. Here, 1X2 means that with every one unit movement of price movement with two units of time, this defines the slope of the angle. 2X1 represents an angle in which there is one unit movement in time with two unit movements of price. 2X1 shows a weak trend, whereas 1X2 shows a strong trend. In other words, the steeper the angle the stronger the trend and flatter the slope of the angle, the weaker the trend is.
There could be various angles made using this concept such as 1X8, 1X4, etc. The following image will give you clarity.
1X1 is known as the 45° angle.
How to apply Gann Trading Strategy?
Gann developed this trading strategy based on the assumptions that
- The stock market moves in a time cycle
- The market is geometric in design and movement
- Price, time and range are the only factors that affect a market
A trader should keep in mind that the market moves in angles and these angles remain that same. These angles only get rotated. An asset moves from angle to angle and this is the ‘Rule of All Angles’. This rule states that once an angle is achieved it moves to the next angle. Gann angles are most commonly used to find support and resistance lines.
When support gets broken it is known as breakdown and indicates that the price will move down. On the other hand, when resistance gets broken it is known as breakout and represents that the price will go up.
Once a trader sets his time frame for making a trade he/she draws the Gann angles over the stock chart. These angles could be 1X1, 2X1, 3X1, 1X2, 1X3, etc. according to the need and then the trader reads the movement of price based on these lines.
Note: Uptrending angles describe support and downtrend angles indicate resistance.
Sometimes a combination of angles and horizontal lines is used to define the support or resistance. For example, if a stock is in a bullish mode then it might retrace up to 50% this level will set as the support level for the stock, whereas, if a stock is in bearish mode the 50% retracement level will mark an important resistance level for the stock. When the price has been moving between angles, these angles mark as strong support and resistance levels for the asset. These areas are also known as price clusters.
It is important to note the strength of the trend in the market. If a trader trades in a weak trend the risk increases and thus might result in losses. A trader must always enter a trade with a stop loss. The stop-loss price is set at the level of price opposite to what the trader expected the price to move in. For example, if a trader thinks bullish of a stock to trade, they should set the stop loss at a price lower than the current market price or last traded price (CMP or LTP).
Also Read: The Inspiring Success Story of D-Mart’s Radhakishan Damani
Gann trading strategy can also be used to determine the time zones for certain price levels. This includes predicting when certain price levels will be reached, when there could be a reversal, etc. Gann angle indicators work better on long-term charts as the levels can be more clearly seen then.
Gann theory is a valuable technical analysis tool used by traders. The special nine square numbers help in setting targets and stop loss for any trades on the basis of the last traded price (LTP). Various websites can calculate these targets for you, including your stop loss for the trades. These targets calculated could be bullish and (or) bearish, a trader has to decide which targets he or she should go for.
Gann trading strategy using Gann indicators can provide one with numerous successful trades if used properly. Profitable trades from Gann theory require precision in its application, which only comes with time and experience. This theory can help you analyze the market better so that you are able to predict the future stock price movement. Remember, it is important to enter every trade with a stop loss and backtest your strategy always.
I hope you liked that article and learned about the intriguing concept of Gann theory.
Thank you and happy trading!
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FAQs
Gann theory states that the patterns and angles of an asset on the market can be used as a predictor for the price's future movements. Conclusion. Gann theory is an important technical analysis tool that traders use.
How do you use Gann indicators? ›
Using a Gann angle to forecast support and resistance is probably the most popular way they are used. Once the analyst determines the period for the trade (monthly, weekly, daily) and properly scales the chart, the trader simply draws the three main Gann angles: the 1X2, 1X1, and 2X1 from main tops and bottoms.
How effective is Gann theory? ›
The Gann trading strategy lays down effective ways to study the market and predict the price movement of assets. The strategies are over 92% accurate and help traders to make profitable trading decisions.
How do you use Gann box in trading view? ›
Turn on magnet, and select the 'Gann Square' tool 5. draw the square from your pivot point, until you go beyond the current price AND hit one of these key fixed time intervals (see number at... Happy Holidays and Merry Christmas!
What is the minimum deposit for Gann markets? ›
The minimum deposit in Gann Markets' standard account is $100.
Which Gann indicator is best? ›
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. This indicator is a more flexible version of the traditional Gann Spiral / Square.
What are major Gann levels? ›
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.
What is the most accurate trading theory? ›
The Method of Wyckoff Theory.
What are the most important Gann angles? ›
Gann believed the 45-degree angle to be most important, but the Gann fan also draws angles at 82.5, 75, 71.25, 63.75, 26.25, 18.75, 15, and 7.5 degrees. The Gann fan originates at a low or high point. The resulting lines show areas of potential future support and resistance.
What was Gann win rate? ›
His success rate of 92.31 percent turned an initial investment of $450 into $37,000.
GANN Square Of 9 Pivots How to use for Intraday ? Method 01 (From 9:05 am to 9:15 am or pre-open market) Take the Weighted Average Price or Volume Weighted Average Price (VWAP) or Time Weighted Average Price (TWAP) of any stock or index. You can use TWAP for Index as volume is not available.
How do you set up paper trading in TradingView? ›
To enable paper trading, log into your TradingView account and navigate to the trading panel at the bottom. Activate the "paper trading" button on the far left side. After that, you will need to reset your account balance as close as possible to your real-life trading balance.
How do you draw in TradingView? ›
Open a chart on the TradingView app. Tap on the pencil icon at the bottom of the screen to access the drawing tools. Select the type of line you want to draw (e.g., trend line, horizontal line). Tap and hold on the chart to set the starting point of the line.
What is the success rate of Gann square of 9? ›
The success ratio of retail investors is 1:1000 (approx). Our GANN calculator provides you ready to trade levels instantly.
How do you draw Gann lines? ›
To draw a Gann Fan, you need to identify a significant high or low on the chart and draw a line from that point to the right. You then draw additional lines at different angles based on the theory that prices will move in specific increments.
What is Gann square of 144? ›
The example above shows a Gann Square set to 144. It is 144 points high (using a Price Unit of 1) and 144 bars wide (trading days on a daily chart). If applied to a lower priced chart you might use a Price Unit of 0.1 so the square will be 144 x 0.1 = 14.4 point high.
Is Gann Markets regulated? ›
GANN Markets operates as an offshore provider of financial services. The Turkish market-focused broker is not licensed by any financial regulator, and it doesn't claim any regulatory status in any jurisdiction.
What is the minimum trading amount? ›
There is no minimum limit to start investing in the Indian stock market.
What is the minimum deposit in stock market? ›
The simple answer is that there is no minimum limit to start trading or investing in the Indian stock market. You just need to have sufficient fund so that you can buy the stock depending on its share price. On Indian stock exchanges, the stocks can trade at any price between Rs 1 to 10,000 or above.
What is the most accurate buy and sell indicator? ›
Stochastics are a favored technical indicator because they are easy to understand and have a relatively high degree of accuracy. It falls into the class of technical indicators known as oscillators. The indicator provides buy and sell signals for traders to enter or exit positions based on momentum.
MACD Indicator is used by traders to evaluate the market trend within a time interval. Traders use this to understand the relationship between trends and the momentum of the stock prices. MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day exponential moving average.
What is the number 9 in trading? ›
The square of nine or Gann Square is a method which squares price and time. The Gann square of nine gets its name because if you look at the above chart again, the number 9 represents the completion of the first square. The square of 9 is a spiral of numbers with an initial value “1” starting at the center.
What is Gann pressure date? ›
Gann Pressure Dates Calculator
Gann used to believe that 21-March is the financial year start date. So, all pressure dates calculated by taking 21-March as start date are called static gann dates.
What is the number 1 rule in trading? ›
The 1% rule demands that traders never risk more than 1% of their total account value on a single trade. In a $10,000 account, that doesn't mean you can only invest $100. It means you shouldn't lose more than $100 on a single trade.
What are the most common trading mistakes? ›
Top 10 trading mistakes
- Not researching the markets properly.
- Trading without a plan.
- Over-reliance on software.
- Failing to cut losses.
- Overexposing a position.
- Overdiversifying a portfolio too quickly.
- Not understanding leverage.
- Not understanding the risk-reward ratio.
Research shows the most reliable and profitable chart patterns are the Head & Shoulders, with an 89% success rate, the Double Bottom (88%), and the Triple Bottom and Descending Triangle (87%). The most profitable chart pattern is the Rectangle Top, with a 51% average profit.
What is BB in TradingView? ›
Bollinger Bands themselves being a measure of market volatility, BB Width is a simpler, cleaner way of determining the amount of volatility in the market.
What is the time cycle indicator? ›
A Time Cycle is an analytical drawing tool used to identify cyclical price activity - repeating high and low price patterns. Cycle analysis is based on the premise that a market's price activity behaves in patterns. Therefore, future price activity can be predicted by identifying historical price patterns.
How realistic is paper trading? ›
Paper trading may provide a false sense of security and often results in distorted investment returns. In other words, nonconformity with the real market happens because paper trading does not involve the risk of real genuine capital.
What is the difference between paper trading and backtesting? ›
Paper trading vs backtesting
While paper trading evaluates how your trading strategy performs in real-time, backtesting applies your strategy to past markets. Backtesting a trading strategy can be done manually or with automated software.
Traders should paper trade until they can meet or exceed their monthly percentage return goal, averaged over a 4 month period. For example, if a trader has the goal to make 2% per month, then the trader should make at least 8% profit, over a period of 4 consecutive months.
What is the 9 5 Gann rule? ›
If a price is rising for 9 consecutive day's at a stretch, then there is a high probability of a correction for 5 consecutive days. (Ratio is 9:5).
What is the best theory of the stock market? ›
The efficient market hypothesis (EMH) or theory states that share prices reflect all information. The EMH hypothesizes that stocks trade at their fair market value on exchanges. Proponents of EMH posit that investors benefit from investing in a low-cost, passive portfolio.
How much money did Gann make? ›
Gann died in the 1950s his estate was valued at slightly over $100,000.
How does Gann square work? ›
The Gann Square basically looks for price and time alignments and is often used to forecast prices. Typically, the time alignment is used for swing trading, while the price alignment is used for forecasting prices and also for identifying supports and resistances of a stock.
How accurate is Gann square of 9? ›
GANN theory is a way to mathematically represent the supports and resistances in the market. Since we started observing this theory from 2009 I have seen it has an uncanny accuracy for intraday trading. No technical knowledge is required. It is simply a “set and forget” method to trade.
What is the golden rule of trading? ›
Don't use leverage: This should be the most important golden rule for any investor who is entering fresh into the world of stock trading, never use borrowed money to invest in stocks.
What is the number 1 rule of stocks? ›
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.
What is the best formula for buying stocks? ›
Important Formulas of Stocks and Shares
- Stock purchased/sold = Investment × 100/Market Price.
- Investment/Cash required = Stock × Market Price/100.
- Income/Dividend = Stock × Rate/100.
- Stock purchased/sold = Income × 100/Rate%
- Investment/Cash required = Income ×Market Price/Rate%
Warren Buffett once said that the only two rules of successful investing are (1) Never Lose Money and (2) Never Forget Rule 1. Buying and selling stocks in the share market (share market) is such a simple activity that almost anyone can do it.
Jake Freeman made more than $100 million trading Bed Bath & Beyond stock, Financial Times reported.
Who is the richest price action trader? ›
Munehisa Homma was born rich to a rice merchant. Apart from his rice business and trading, much of his net worth comes from his books on financial markets and trading. However, it was his immense success in the futures that made him one of the richest traders in history.
Who created Gann? ›
W.D. Gann, was a finance trader who developed the technical analysis tools known as Gann angles, Square of 9, Hexagon, Circle of 360 (these are Master charts). Gann market forecasting methods are based on geometry and ancient mathematics.
How do you use Gann swing? ›
Gann's swing method is very similar to the DeMark or Williams method. o find a support point, or trough, a low bar is identified. Once th low bar is identified, the two following trading days are observed. If these two days have higher highs than the low bar, then the low bar is a support point.
What is the Gann price time? ›
Gann Price-Time Strategy is a technical analysis tool that combines price and time analysis to identify potential turning points in financial markets. According to W.D. Gann's theory, price and time are interconnected, and specific price levels and time intervals can be used to predict future price movements.
