Gann Ideas, Pivot Points, and Fibonacci Retracements Part 2
Born in 1878, W.D. Gann was one of the pioneers of technical analysis and one of the most successful traders of his time. His concepts and techniques still apply to trading today. Gann was foremost a financial astrologer (this is where he lost me.) and spent countless hours studying cycles, numbers to predict movements in stock and commodity markets with great success,. Some of Gann ideas I use at certain times in my own trading for predicting market cycles, and trends. In this article I will go over a simple Gann System to use when the market is in a tight channel. However before we begin with the technique it is important to stress that Gann believed to successfully trade the commodities markets, you must follow a defined set of rules, never to be violated. His “28 Valuable Rules” are still valid for traders today, and If you wish to read the old time tested rules go to my blog and see them there. Also for a chart view of this article it will be posted there as well.
The technique is slightly different on shorter and longer time frames. This article will focus on the one hour time frame.I consider a tight consolidation to be approximately 70 pips from the top of the range to the bottom of the range. A consolidation period is longer then 7 bars the longer the better it would mean the market is really winding up for an explosive move once it breaks in general. Seven is a Gann Number, the time cycles and time periods of Gann’s cycles are 90, 84,60, 30, 20, 13, 10, nine, seven, five, three. (FYI) What we want to do is put a horizontal line on the highest high and a line on the lowest low of the consolidation. Once the market breaks up through the top line we can buy the market and place a stop loss at the bottom of the range. Here is the big Gann Trick we want to see three higher closes in a row and Ganns rule would apply. Your target would be the Range multiplied by three. On every bar that’s close is greater then the last four bars closes (as the market is moving up) before it, mark the lowest low of those bars and move your stop loss to that low. If you get three up closes followed by three down closes exit the trade because the market is not ready to carry the rally onward. The opposite would occur if we break the bottom of the range. You would sell that break looking for three times the range on the downside. You would look for three down closes, if you get three up closes after the break down exit the trade because the downward movement may not carry on. On each low close that is less then the previous four bars move your stop loss down to the highest high of those bars.
This technique is a simple one to use and Gann used this in periods of consolidation. He always would read which way the over all trend was, so if the market broke up but the over all trend was down he would look for rally to fail. If it did not and hit his target of three times the range, the market would be telling him that perhaps there was a change in the trend, or his time cycle might be moving out a bit.
Here are a sample of Ganns truisms “Time cycles repeat because human nature does not change.” “The trend is your friend” is truly Gann philosophy at its most basic. Gann always looked at the big picture first and felt if you study the past, the future will become an easy read.
I know this is a difficult to read if you wish to see a video on the technique go to my blog and it will be much easier to understand.
By: Thomas Strignano
