(Trading)Gann Applying Gann Angles to Computer Charts(Brent Aston,2000,Technical Analysis Inc)

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Applying

Applying Gann

Gann Angles

Angles

To Computer Charts

Tried and true and far from being discarded, Gann

angles are daily tools for some traders. Here’s how

to use two of W.D. Gann’s central ideas in today’s

computerized environment.

rader William D. Gann became

famous in the early 20th century

for his ability to forecast exact

price targets in the stock and

commodity markets. To arrive

at his forecasts, W.D. Gann used a combination of

methods, ranging from simple counts and angles to

correlating natural events. Of course, many securities

that exist now did not

exist then, and volatility

is very different from

what it was in his time.

However, the geometrical

relationships that he

applied to data appear to

work equally well on

modern data.

Of the work that he

passed along, two of

perhaps the best known

but often misunderstood

techniques are Gann

angles and the squaring

of data on charts. Gann

squares and the squaring

of a chart are totally different things and should not be

confused. Squaring a chart is scaling data into uniform

proportions, while Gann squares are squares

containing a numerical sequence that W.D. Gann

used to forecast future swing points. Applying Gann

angles is a logical, mathematical method that requi

angles is a logical, mathematical method that requires

res

only a few drawing tools to reproduce, o

only a few drawing tools to reproduce, or they may be

r they may be

applied to data via a personal computer.

Here are two specific methods of preparing and

implementing Gann techniques, updating the hand

method with the use of software.

G

ANNANN BYBY HANDHAND

Before we examine Gann techniques with the use of

software, let’s look at the theories behind them.

FIGURE 1: SOYBEANS.

FIGURE 1: SOYBEANS.This hand-drawn chart of 1948 soybeans depicts W.D. Gann’s basic techniques of drawing trendlines.This hand-drawn chart of 1948 soybeans depicts W.D. Gann’s basic techniques of drawing trendlines. (Reproducti

(Reproduction courtesy of on courtesy of John Wiley & John Wiley & Sons.)Sons.)

by Brent Aston

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P A T R IC K F IT Z G E R A L D

Squaring: That Gann was fascinated by squares is evident in his work; he squared price and time, and he used a repeating count of four. To draw Gann angles, it is essential to set up your own chart the way that Gann did so that it is squared. Take a look at Figure 1.

A perfect square is equal in both width and height, with four equal sides and four right angles. Gann hand-plotted his data onto graph pa-per that consisted of small squares combined into larger squares con-taining 16 of the smaller squares. That square ratio is simply expressed as 4x4 (that is, 16 squares = 4x4).

The same ratio of width to height can be expressed as 1x1 or 1-to-1. When Gann plotted price on his charts, the data was in a 1-to-1 ratio, indicating one point to the square on the vertical axis, and one day (or one bar) to the square on the horizontal axis. This ratio — one point to one day — works well with some securities, but not all. Some securities require the use of fractions or decimals for the points.

Gann’s method of squaring tends to confound many would-be practition-ers. However, squaring charts by hand can be as simple as drawing a line and putting data on a 1 grid. A 1-by-1 grid works well on the grains, and that is what I use.

Beginning with one day of data for wheat contracts and a daily range of five points, draw a line on the vertical axis five squares long. If the close were one point from the high, it would be one square lower than the top of the line just drawn. The horizontal space from the day before (if any) should be one square wide (Figure 2).

If the next bar has a four-point range that closed two points higher than the previous high and had a low one point lower than the close, it would be plotted in relationship to the first bar, one square over for the day, and from one square below the close of yesterday to three squares above it. The third bar plotted on the next day has a range of 3, a close that is one point lower than the previous close

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and a high that is one point lower than the previous high.

Gann angles: Why Gann angles have a correlation to the market may be explained by the fact that humans instinctively respond to ratios like halves, fourths, and even thirds, perhaps because the human mind likes to have a sense of order. Artists certainly know, intellectually and instinctively, that the eye will follow a line and that we perceive the world in a series of relationships that the mind finds familiar.

Adding Gann angles by hand: On a

hand-proportionally. Here’s how to do it using SuperCharts or TradeStation.

The process is surprisingly similar to squaring charts by hand. Be aware that when using some software programs, the angles are not always accurate, depending on your monitor, its resolution, or your display hardware. You may find it useful to get a protractor or a 45-degree angle-drawing tool to check the accuracy of the line angles. When adding, moving, or configuring angled trendlines, always check the angle by clicking on it to make sure that it has not been distorted in some way.

Using the wheat contract as an example, drawn chart, only a

straight-edge is needed to line up the opposite corners of a square and draw a 1-to-1 angle. A protractor or a variable-angle drafting tool can be used to measure other angles. W.D. Gann arrived at the other angles by dividing a large square up into 64 smaller squares (8x8) (Figure 3). Excepting the 3x1 and the 1x3 lines, Gann angles were drawn from either the top or bottom corner of the large square to various points where the smaller squares intersect the larger square.

Specifically, Gann angle lines radiating outward from the bottom left-hand corner were drawn in a

counter-The

large

square

1x8 1x4 1x3 1x2 The 1x1 line 45-degree angle 3 r d l i n e 3 x 1 2 n d l i n e 4 x 1 1 s t l i n e 8 x 1 4 t h l i n e 2 x 1

start by selecting the rec-tangle drawing tool. For ease of drawing, begin with round numbers like 20, 110, or 330. Put the tool on the selected level and begin drawing a rectangle that is 10 points high by 10 days wide. Use full points, not quarter points, again for ease of drawing. Full points won’t work for everything, but they usually work for wheat.

If the dimensions are accurate, it is not important where the rectangle is drawn. In Figure 4, the rectangle has been drawn on a September wheat chart from 260 to 270 in the vertical axis and from August 2 to August 16 on the horizontal axis (count

FIGURE 2: TRIAD OF BARS.Here are three

hand-drawn bars and a 45-degree Gann angle.

FIGURE 3: SQUARE.Gann derived nearly all his angles by drawing them on an 8x8 square,

using the intersections of the internal boxes and the external box; 3x1 and 1x3 are derived differently.

clockwise direction from that corner to the point where the top of the small square in the lower right-hand corner intersects the larger square, resulting in an 8x1 line. Likewise, the next line was drawn to the point where the second square from the bottom intersects the large square, resulting in a 4x1 line. The 3x1 line intersected a point a third of the distance from the bottom to the top of the large square. Then a line was drawn to the point that was four squa res from the bottom, resulting in a 2x1 line. Finally, the 1x1 line was drawn to th e opposite corner. Following that series of lines, Gann angle lines radiate from the bottom left corner to the same points, beginning with the first small square in the upper left-hand corner and proceeding across the top of the square. These G ann angle lines resulted in the converse angles of 1x8, 1x4, 1x3, and 1x2.

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QUARING

G

ANN CHARTS WITH A COMPUTER These days, of course, computers are by far the preferred method for collecting, plotting, and analyzing data. The Gann process of squaring charts is simply a matter of getting the data aligned

only the spaces between bars to reduce confusion). Clicking on the rectangle between corners makes it possible to drag it accurately into place.

Now, using a trendline tool, put a 45-degree angle line on the screen. Line it up with the rectan gle’s corner by clicking on the line and dragging it until it lines up with one corner of the rectangle (Figure 5).

Now begins the sometimes frustrating sequence that squa res the data and concludes the squaring process. Open the format price data dialog by right-clicking on the screen to bring up a dialog box. Select the scaling tab. Adjust the scale using the user-defined maximum and minimum boxes. Adjust it for a larger or smaller scale by increasing or decreasing the values in the boxes until the 45-degree line goes exactly from one corner of the rectangle to the opposite corner. This involves some trial and error but may be simplified by increasing or decreasing the values with round numbers. As the line gets closer to the targeted corners, however, smaller and smaller numbers are required for accuracy.

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At this point, note that the rectangle has changed and continues to change shape until the rectangle finally becomes square (Figure 6). The line may have to be moved back to the corner(s) after each change in scale. It may be advisable to use the magnifying feature in Windows or magnifying software such as Loupe for greater accuracy. If SuperCharts’ magnifying feature is used, the scale will change, throwing off the lines and angles. (When you’re finished, leave the 45-degree angle line on the screen to be used later.)

If done correctly, the chart should now be squared as in Figures 6 and 7 and ready for Gann angles. Once charts are squared, 45-degree angles or any other angles can be accurately represented in only one way. Lines parallel and perpendicular to Gann angles may also be added to a squared chart.

FIGURE 4: SQUARING CHARTS ON A COMPUTER.Here is a rectangle that has been set

up in preparation to be squared.

FIGURE 5: DRAWING A LINE.Have your computer draw a perfect 45-degree line and place

it on the corner of your Gann square. It usually won’t go to the opposite corner correctly because your chart has yet to be squared.

FIGURE 6: ADJUSTING THE SCALE.Using your software’s scale adjustment (format price

data in Omega products), adjust the vertical scale until the 45-degree line goes perfectly from one corner of the box to the opposite corner. When it does, the chart is squared.

45˚ line (1x1)

Gann tool 1x1 line overlays hand-placed 1x1 line

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RAWING

G

ANN ANGLES WITH A COMPUTER

Many software programs come with various Gann angle drawing tools. The Gann fan tool in SuperCharts can be used to turn on all of the various angled Gann angle lines at once or each individually.

Now go back to the chart that y ou have just squared, select the Gann

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fan tool, and find a major pivot po int. Apply the Gann fan to the chart (Figure 8). One or more lines should be seen radiating out from that point. Click on the fan to open the dialog box and click on the line that reads “format selected Gann fan,” then click on the properties tab. The Gann fan must be set to the appropriate direction — up or down — for your chart. If the price goes up from your chosen pivot, the fan must be set to the up/right direction; if the price goes down, select down/right. In the time/ price Gann lines part of the dialog box, select only the 1x1 line to start by clearing the checks from all the other Gann angles.

Next, adjust the program’s Gann angle. Beginning in the same dialog box, find the input box next to the points per bar; inside this box is a default number. Increase or decrease this number until the 1x1 Gann fan tool plot is at a 45-degree angle. The angle of the Gann line should ch ange when the number is changed. If the 45-degree angle trendline is still on the chart, the points per bar number can be adjusted until the lines are parallel (Figure 7). Once the squaring and setting of the points per bar are complete, the scale and spacing can be changed without affecting the relative position of the fans, although they will look different because they are effectively being stretched to a different scale.

Once you’ve gotten the right number of points per bar, put it on the chart using the text tool. Having the number on hand for reference purposes allows you to add more Gann fans and use it for future reference. Unfortunately, the points-per-bar number rarely works on other contracts of the same or different securities. However, having the number can speed up the process of zeroing in on the right angles when putting Gann angles on other charts of the same security.

Gann fans can be duplicated by using the tool that allows you to add a parallel drawing object. After clicking on any Gann fan, you may drag it to any location on the screen. The color and style of various fans can be altered for clarity.

Now, the other Gann angle lines listed in the dialog box

can be turned on as needed. Fans can be added in any of the four possible directions — up/right, down/right, up/left, and down/left.

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LACEMENT

Gann fans can be started at various points, such as pivot points and Gann angle intersections, as shown in Figure 9. Gann angle lines can begin and extend outward to important swing points where trends change direction.

Some experience using Gann angles may reveal new and interesting relationships in the data. In Figure 9, which is a chart of the September Standard & Poor’s 500 index contract, a Gann fan angled upward off a previous high helps to define the support and resistance (point A) of a subsequent movement into new highs.

After last year’s pullback in the autumn, the price stayed within the upper 1x4 and 1x3 ang les. Strong trends like this can be a high percentage move in price and time. Although the red rectangle was a square when the chart was originally squared, changing the scale has made it look longer than it is high. Despite being stretched, the Gann angle lines should line up at the same points that they did when the chart was still squared.

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RACTICAL APPLICATIONS

Having squared a chart and applied Gann angle lines to it, how is it used? W.D. Gann was of the opinion that the 45-degree angle line was the most important line on the chart. He went on to say that when the 45-degree angle line was broken, the trend has changed.

Study Figure 10. Almost everything in this chart is keyed off the angles coming from the peak at the upper left. Each time the price got near a Gann angle line, it reacted by vibrating around the Gann angles. Often, the price continues to follow these lines until market conditions cause the price to break through. That is often a sustained move.

FIGURE 7: GANN FAN PARALLEL TO THE 45-DEGR EE ANGLE. Once the scale is adjusted

and the 45-degree line is in place, the Gann fan can be aligned confidently.

FIGURE 8: SEPTEMBER WHEAT AND GANN FAN.September wheat declines into the

summer but rallies to the Gann fan line as autumn approaches. Once a chart is squa red on your computer, you can put on a Gann fan and turn on or off the angles you want dis played. Gann Fan

1 x 1 Gann -45 degree angle

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FIGURE 10: SEPTEMBER WHEAT. Prices move down along a 1x1 angle to point A, where they bounce upward. Subseque ntly, angles drawn equidistantl y after the low is in place identify that reaction as the center of the downtrend’s progress.

FIGURE 9: S&P FUTURES.As the Standard & Poor’s futures contract rebounds off historical highs,

Gann lines from previous pivot points provide support and resistance at a variety of locations.

Once a Gann angle line is crossed, the price usually moves in the direction of the next closest line. However, when a Gann angle line is rapidly approached by the price but not crossed, the price will often seem to bounce and move rapidly away from that support or resistance.

The price generally gravitates toward the nearest of intersection points, where the Gann angle lines cross. If the volatility is great, this can happen quickly, taking only one or two days.

Not all charts will have a price movement that stops in the exact center like the wheat chart shown in Figure 10, but clearly this one did (point A). In May and June 1999, the price was going through several closely spaced Gann angle lines from above and below. This is a zone of congestion and slow trending, but in the wide-open spaces during February, March, and April, wheat had room to run. Further, after three years of downtrend, the wheat price did not cross into the lower right-hand portion of the Gann square. Does this suggested support forecast an upcoming bottom?

Using this example (Figure 10), some Gann theories can be assessed by examining the results of squaring the wheat chart and placing Gann angles on it. Does the price vibrate around these Gann angle lines? Was the 45-degree angle important? Did the 45-degree angle define the trend? It appears so.

Using overbought and oversold indicators, or trend indicators and any number of other indicators with Gann angles has intriguing possibilities. For example, when the price has been moving down and comes near an intersection, we might find that the relative strength indicator (RSI) or stochastic

indicator is oversold and may suggest a divergence. Such verification may improve a trader’s odds of success.

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ONCLUSION

Once charts are squared, Gann angles are not subject to changes in scale. When applied correctly, they are certainly not random, and they show significant areas of support and resistance. Further,

they can be something of a roadmap, showing where and how price action will behave in both price and time.

Finally, the process of squaring charts and adding geo metric Gann angles can be time-consuming, either by hand or by computer. While applying Gann theory by computer may be quicker and simpler in some ways, it still takes careful scrutiny to use computerized Gann angles to their greatest advantage. Once done, however, it is best to focus on the basic lines such as the 1x1 angle and look for price action to track and react to it, no matter if by computer or by hand.

Brent Aston is a private trader.

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EFERENCES AND RELATED READING

Hartle, Thom [1999]. “Gann Swings And Intraday Trading,” Technical Analysis of STOCKS & COMMODITIES, Volume

17: October.

Kaufman, P.J. [1998]. The New Commodity Trading Systems And Methods, 3d edition, John Wiley & Sons.

Krausz, Robert [1997]. A W.D. Gann Treasure Discovered , Geometric Traders Institute, 1835 US 1 South 119, Suite 352, St. Augustine, FL 32086, 512 5751, fax 512 443-7119, Internet http://www.fibonaccitrader.com

Marisch, Gerald [1990]. The W.D. Gann Method Of Trading, Windsor Books. A 1x4 1x3 1x1 A S&C