A
dvanced
&
B C asic
's
hart
of
Gann & Fibonacci
_________________ ________________________ ________________ ________________ _______________ _______________ _______________ _________________ _______________ ______
By
GENE NOWELL www.gannline.com
MATHMATICAL PRINCIPLES OF THE HIGHEST ORDER LIE AT THE FOUNDATION OF ALL THINGS
1
Her I loved and sought after from my youth. I sought to take her for my bride and was enamored of her beauty. She adds to the nobility the splendor of companionship with God; even the Lord of all loved her. For she is instructress in the understanding of God, the selector of his works. And if riches be a desirable possession in life, what is more rich than Wisdom, who produces all things? And if prudence renders service, who in the world is a better craftsman than she? Or if one loves justice, the fruits of her works are virtues; For she teaches moderation and prudence, justice and fortitude, and nothing in life is more useful for men than these. King Solomon
My sincere thanks to Larry Williams (www.ireallytrade.com) for his wisdom and permission to share some of his formulas in my book. I would also like to thank Mathew Verdouw for his permission to reproduce the charts generated by his fabulous program Market-Analyst. a www.market - -analyst nalyst .com/software .com/software
Finally my thanks go out to Daniel Ferrera and Brad Stewart for their permission to reproduce the Square of 9 Table. www.SacredScience.com
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Table of Contents Chapter: 1.) The Gann Scale
Page 7 - 12
2.) Applying Angles to Charts
Page 13 – 22
3.) Swings and Angles
Page 23 – 38
4.) Angles of Support/Resistance Suppor t/Resistance
Page 39 – 50
5.) Applications & Strategies
Page 51 – 57
6.) Types of Squares
Page 58 – 76
7.) Harmonic Numbers
Page 77 – 84
8.) Trendline Indicator
Page 85 – 88
9.) Square of 9
Page 89 –122
10.) Market Science & Behavior
Page 123 – 126
11.) Gann's Rules for Trading
Page 127 – 134
12.) Money Management
Page 135 - 138
13.) The Fibonacci Spiral & Golden Ratio
Page 139 - 145
15.) Entering a Trade Larry Williams way
Page 146 - 147
© 2015
3
Introduction Who was W.D. Technical
Gann? W.D. Gann
has arguably
contributed
more
to
Analysis, and in particular the understanding of the
relationship between Time and Price, than any other person that traded the world markets. It was Gann’s mathematical genius and his ability to see the patterns in the market (that at the time nearly everyone else ignored) that made him so successful and has a legacy that continues to this day. William D. Gann was born June 6, 1878 in Lufkin, Texas. His father f ather was a cotton farmer in Texas. Growing up on a cotton farm, young William began calculating times of the year when cotton was at its best price and suggested to his father not to sell at harvest. As his theories proved successful, he moved on to other commodities and began experimenting with historical data. He started trading in 1902 when he was 24. He was believed to be a religious
man
by
nature
who
believed
in
religious
as
well
as
scientific value of the Bible and spoke of it as the greatest book ever written. This can be repeatedly observed in the books that he wrote over the years. He was also a 33rd degree Freemason of the Scottish Rite Order, to which some have attributed his knowledge of ancient mathematics. He was also known to have traveled many places like India and Egypt and studied the ancient Greek geometry along with the Indian and Egyptian cultures. It is believed that during this time on his journeys, he discovered the "Square of 9". He called this the "SPIRAL CHART". I will cover this in a later chapter.
Gann
used
ancient
math
and
geometry
(geometric
angles)
on
his
4
charts and described the use of angles in his book The Basis of My (1935). There has been a general disagreement Forecasting Method whether
he
made
profits
by
speculation
himself.
However,
his
famous Ticker Interview[11] shows that his claim to profits was as real as his documented forecasts. As you will see later in this book, his forecasting methods are still
valid.
His
most
effective
tool
was
the
Square
of
Nine
(Spiral Chart). People have asked me how Gann Angles are going to help in their trading? And how this Gann Math is going to blend in with the type of trading they do?
My
answer
is
the
simple
techniques I teach in this book are no more difficult to learn than Moving Averages or Stochastics or the RSI. I know there are people who trade on these alone and hope that these basic tools will to bring them to riches. Moving Averages alone are not a formula for success. Truth of the matter is, most Moving Average systems are 50% accurate at best. It is better to flip a coin and call it. One
grain
spinner
on
broker his
told desk
me
back
which
in
the
divided
early
the
1980's,
circle
he
into
8
had
a
equal
segments. Every other segment was BUY - SELL- BUY...etc; When a client
called,
and
asked
the
broker
which
way
he
thought
the
market was going that day, he would flip the spinner with his index finger and pass his wisdom onto the client. He had a 50-50 chance
of
being
right
and
in
the
mean
time,
he
received
a
commission from it. Believe it or not, people like this do exist. Bottom line is, if you want to get serious about a business, you must do your homework. Trading Stocks, Commodities, Forex or any market for that matter, is no different. You must dive in and get your hands dirty (so to speak) and do some work. You must have a Plan of Action. When Angles are used to analyze any market, it is 5
like building the wooden frame of a house on a foundation. The foundation is already laid in the form of Market Movement captured on charts. It is my intention to reveal to you how this frame work can be used as a tool for showing timing points for trend change and support/resistance levels. In the early 1980's I attended a Larry Williams seminar trying to obtain some of his wisdom in trading the commodity markets. I left that
seminar
statement
he
description
of
with
an
made
that
the
indelible stands
commodity
mark out
on
most
markets.
He
my in
memory. my
said,
mind "The
The
one
was
his
commodity
markets are like a roaring tiger stalking around looking for prey. The trader is like a hunter with a single shot rifle. He has one shot and it better be a good one or the tiger will pounce all over him". I think that sums up today's markets in a nut shell. The point is you better be prepared to exit stage left just in case your single shot missed, (your analysis was wrong). I don't know about you, but I want that door on the left side of the stage to be as close as possible. I do not like to risk a lot of money on any trade. Getting in the market at the point of least exposure is one of my goals and it should be for every trader. How do we accomplish this goal? Well, in this book, I hope you will find the answer to that question through the guidelines provided which show the least amount of exposure to your trading account and to find your comfort zone.
6
Chapter 1 The Gann Scale What I present in this book is a foundation on how to use angles on charts along with an depth study of the Spiral Chart or better know
as
the
Square
of
9.
These
two
important
elements
of
Technical Analysis help to confirm Time and Price points that lead to Support/Resistance areas and a change of trend. The first part of the book covers the theory of angles and the related math as a foundation with reference to how and why they are used. The middle part of the book covers the application of the Square of 9 for all types of
trading. And finally, I hope to instill the importance
of good money management and how to use patience and wait for the right time before making a trade.
Words from W.D. Gann "Speculation or investment is the best business in the world if you make a business of it. But in order to make a success of it, you
must
study,
be
prepared,
not
guess,
not
follow
inside
information or depend on hope or fear. If you do, you will fail. Your
success
depends
on
knowing
the
right
kind
of
rules
and
following them”. Gann said, "Keep this well in mind, For Stocks or Commodities to show up trend and continue to advance, they must make higher bottoms and higher tops. When the trend is down, they must make lower tops and lower bottoms and continue on down to lower levels. But remember, prices can move in a narrow trading range for weeks, Months or even years, and not make a new high or a
new
low.
But,
after
a
long
period
of
time
when
Stocks
and
Commodities break into new lows, they indicate much lower prices. And after a long period of time when they advance above old highs
7
or old tops, they are in a stronger position and indicate higher prices. This is the reason why you must have a chart which whic h goes a long way back, in order to see just what position a Stock or Commodity is in, and at what stage it is between extreme high and extreme
low.
You will go broke trading on hope and fear. You will never succeed buying or selling when you hope the market is going up or down. You will never succeed by making a trade because you fear the market is going up or down. Hope will ruin you, because it is nothing
more
than
wishful
thinking
and
provides
no
basis
for
action. Fear will often save you if you act quickly when you see that you are wrong. The fear of the market is the beginning of wisdom. Knowledge which you can only be obtain by in depth study, will help you to make a success. The more you study past records, the surer you are to be able to detect the trend of the future".
Setting up and Scaling Charts What I mean by scale is i s to have the price in direct proportion to the time. There are a number of rules Gann used in his analysis with angles and scaling. One of these th ese rules was the use of o f correct charts. There are several types of charts that can be used for analysis. For illustration purposes, I will use two of them. There is the Market Day chart, which only shows trading days and then we have the Calendar day chart which encompasses the entire calendar year and shows all 365 days. Any type of chart that posts the High, Low, and date will be fine because time and price are a measuring instrument and as long as they are uniform, an angular structure can be applied.
When working with a market day chart, the important thing is to set up all the data with no spaces (gaps in time) for non-trading
8
days like weekends or holidays. If you have the capability to set up a calendar day chart, you will find important timing points that are not shown on the market day chart. These must be laid out in the correct format.
As
long
as
the
format
is
uniform,
it
will
be
sufficient
for
angles. A Gann format features four, six, eight and sometimes ten squares to an inch. Soybeans and most grains use the eight squares format where as the S&P 500 index uses the 10 squares format. Chart 1 shows the Gann 10 squares format and the S&P 500 index.
Chart 1
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Market-Analyst gives the user the flexibility to change these squares to any number. Notice the large squares have 10 smaller squares going up in price and over in time. This should be scaled to the commodity or stock being traded. In the S&P each smaller square equals 25 points, or 1/4th of a hundred. Because there are 10 squares in each large square, each full square is worth 250 points. Therefore, the 1x1 angle will be 1 unit in time and 25 points in price.
Chart 2 shows the 8 squares scale as used in the grain markets.
Chart 2
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In the Grain markets the scale will be 8 as in cents. In the old days, grains started trading in 1/8th increments. So Gann used the 8 squares per inch to equal a whole cent because corn and wheat were trading at less than a dollar. In today's Soybean market, eight units of time equals eight cent in price because we are 10 times that of the price from when Gann did his scaling. Chart 3 shows Gann Angles applied to a Soybean chart using this 8 to 8 ratio.
Chart 3
The dark angle is the 1x1 and the gray the 1x2. These angles will be significant in determining support/resistance if the chart is
11
scaled properly. Once this concept is understood, you will have the ability scale any chart including intra-day charts and apply the same rules.
12
Chapter 2 Applying Angles to Charts Calculating
a
Gann
Angle
is
the
equivalent
to
finding
the
derivative of a geometric line on a chart in a simple way. Each geometrical angle, which is also found in the square of 9, divides time and price into proportionate parts. Gann called the 1x1 the most important angle or the 45° angle, which he said represented one unit of price for one unit of time. If you draw a perfect square and then draw a diagonal line from one corner of the square to the other, you have illustrated the concept of the 1x1 angle, which moves up one price unit per day and over one unit of time.
As I mentioned in
chapter 1,
if you apply Gann Angles in the
traditional manor, scaling is one of the most important parts of angle analysis. Once you have an understanding of how to apply the proper
scale
to
charts,
you
will
be
able
to
use
these
Angles
effectively.
Scaling a chart is similar to laying out a set of stairs. The "Stringer" is the result of calculating the height of the drop, length of the run, rise of the stairs and depth of the thread. If these calculations are correct, then the last stair will equal the "Landing". The thread depth and riser height are Time and Price. The Stringer is the Gann Angle. Your landing target will be dictated by the price of the market.
13
Chart 4 When the scale is correct, it will help in drawing the vector for the 1x1. Fortunately, Market-Analyst has the capability to default to the proper scale on each chart. This saves a lot of time. Here is what Gann said about scaling, angles and their use;
"When scaling a
stock or commodity, There are three kinds of angles. These are the vertical (price), the horizontal (time) and the diagonal which we use for measuring time and price movements. This
diagonal
angle
is
called
the
1x1" .
Gann also pointed out that when
these angles are accurately drawn from tops and bottoms or extreme highs
and
lows,
they
will
be
able
to
measure
space
and
time
correctly with little or no mistakes.
14
What does he mean, measure space and time correctly? Lets examine this in depth. Chart 5 is a Continuous Sugar chart. The lowest low on this chart is 13.39. If the chart is scaled properly and the angles are drawn up from the low, we should have some kind of a change in trend when time and price come together.
To begin with we have the 13.39 starting point in price. Using that number as a bench mark, we count 13.39 days to the right and find that the uptrend ended on that very day 13.39 days out in time
from
the
low
(X
marks
the
spot).
This
is
your
"Landing"
target which was given to you by the 13.39 price low. This was the highest closing price of the uptrend.
The market price began a sideways action and continued for another 13.39 days until it broke the 1x1 angle and began a down trend (Arrow). This was exactly 26.78 days (2 X 13.39) from the low. When time and price came together at 26.78 days and met at the 1x1, we had a time and price convergence.
Examine Chart 5 closely to see how this occurred. Later on in the Square
of
chapter 9
we
will
examine
a
few
more
of
these
occurrences. Also notice how price reacted to each angle drawn up from the low. Especially
note
how
price
retraced down the 1x8
angle before finding enough buyers to move price higher.
15
Chart 5
Getting back to scaling, if you're trying to scale a stock or commodity like Heating Oil, use 10 squares per inch. Heating Oil is
priced
right.
So
at
Dollars
it
would
per
be
Gallon
thousands
with of
4 a
decimal dollar
places
for
the
to
the
minimum
fluctuation. In the following chart, I set the squares at 10. Each smaller square will represent .01 cent or points and one day in time. The larger square equals 10 cents and 10 days in time.
The
smaller squares were used by Gann for the drawing of angles. In his day it was the best way to find the equivalent of one unit of price and one day in time. In other words 1 cent and 1 space to
16
the right, is the balance of time and price and the reference points for the 1x1 angle. The reason we use 10 is because the price
of
Heating
Oil
is
measured
in
cents
per
dollar
and
the
current price is within the $1.00 to $2.00 range. If Heating Oil were below $1.00 the scale would change to the next 1/10th lower.
It is the same with a stock that has a price of less than $1.00. Once
the
square
security
will
be
moves
changed
above to
$1.00
.01
cent
the
scale
from
for
tenths
each of
a
small cent.
Therefore making each larger square worth 10 cents. Keep in mind what Gann said; “Volatility increases as price goes higher”. You will therefore see wider price fluctuation per trading day or week or month. This is especially true at the tops of markets.
In Chapter 6 I cover Types of Squares. Once the proper square has been applied to a chart and a market mark et is moving higher, we will see how these squares
are compounded as price goes higher. If the
square of 90 is being used and price moves more than 90 higher, then price will be in the second square up from the bottom and the angles change because volatility and ranges have changed and we must adjust the scale to a different price level.
17
Chart
6
is
Heating
Oil
scaled
to
.10
cents.
If
your
computer
program has the capability to do this, then when you draw a 1x1 you will be able to see if the vector is correct thus making the angles significant in your study of price and time. This will help you to obtaining good results.
Chart 6
18
Chart 7
On Chart 7 the 1x1 is labeled (X). The angle below it is the 2x1 (arrow). This angle moves down at a rate of 2 price per 1 day, which is a faster trend. This chart shows market Price moving down four visible months at the rate of the 2x1 until it broke and moved below to the 3x1 angle (Star) which is 3 price per 1 day. This shown on Chart 8 .
19
Chart 8 When a situation like this occurs, it is wise not to take a long position
until
a
signal
comes
in
along
with
a
few
other
confirmations that a bottom has been put in. In this case, Heating Oil has been in a Historic Downtrend and all cycle indications are showing
that
a
bottom
is
near
or
has
been
put
in.
More
confirmation is needed.
Chart 9 has the proper scale in place and a Gann Box which has the angles drawn on this Continuation chart of Lean Hogs. The breaks in
price
are
the
different
contract
months
rolling
over.
The
angles show how Hogs are sensitive to the 2x1 and 1x2.
20
Chart 9
Notice how price moved up from the start along the fast moving 4x1 angle. When the contract rolled over, market price followed the 1x1 and remained in this trend for two months occasionally finding support on the slower 1x2. Once price broke away from the 1x1 angle it moved to the slower trending 1x2 angle.
Finally I have a Soybean chart which is scaled 10 Cents to every small square and $1.00 for every large square. This is because Beans are over $10 a bushel. The angles are drawn off the $15.08 high which was put in on May 22, 2014.
21
Chart10
It is interesting to see the possible formation of a bottom here. Price came down made a low. Moved up and went sideways for two months and it appears taking
place
during
to be
the
making
historic
a higher low.
down
trends
in
This is all the
overall
commodity market place. It is interesting to note that price is following the slower trending angles down which usually indicates that a change in trend is on the horizon.
22
Chapter 3 Swings & Angles Now by this time, you might be wondering won dering how is this going to make me money in my trading? Bear with me, it will all come together shortly. The most common place to start an angle would be the lowest low or the highest high. You can easily look at a chart after the fact to see where this place is in price and time. However,
if
you
know
the
mechanics
of
Gann’s
major
and
minor
swings, you will be able to identify these and other significant points to draw angles. Make sure the low or high being used is a (major) swing point. Gann wrote about his major and minor swings and gave examples. His minor was a two day swing. His major was a three day swing. Chart 11 shows the Gann three day (major) swings.
Market-Analyst has the capability to adjust these swings to any time frame you wish. Chart 11 is a snapshot from the summer of 2012 Live Cattle continuation. I have chosen this time frame for a very important reason. I am going to change the time frame of the swings
to
seven
days
from
three
days
and
show
how
the
angles
interact with price in future days. I am going to be using the May Low and the July low to draw a set of Gann Angles.
The reason I'm doing this is because I would like to compare Larry William's (www.ireallytrade.com) seven day swing to Gann's three day swing. Chart 11 has the three day swing of Gann and Chart 12 the Larry's seven day swing. Lets take a look at the results.
23
Chart 11 Notice how the May low is picked up by the computer in the three day swing. The low in July is also picked up by the computer. Now in Chart 12, the May low is by-passed. And the July low is now the lowest swing of the year which is a 7 day swing point.
24
Chart 12
Ok now lets draw a set of Gann Angles off this low in May (Chart 13). After that, I'll draw angles from the July low. The angles drawn
from
May
show
how
insignificant
they
interact
with
the
ensuing price action (chart 13).
25
Chart 13
Chart 14 shows the angles drawn off the seven day swing low in July.
The
1x1
angle
(star)
shows
major
support
resistance
and
change of trend (once penetrated) and the other arrows drawn are at support/resistance areas. If you compare the angles drawn off the May low to the July low, you can see the May angles have no significance what so ever. This is a good lesson for you Gann Experts
who draw angles
from
major
lows
and
highs. Some times
there are double bottoms and tops that have to be considered. And the 7 day swing may be able to filter these points of interest.
26
Chart 14 These charts illustrate where to start angles and where not to. There
are
swing
points
after
trading
ranges
that
must
be
considered. The lowest low or highest high that was established will most always be, but may not always be a valid point to draw angles from. This pattern of higher highs and higher lows must continue
by
X
number
of
days
to
establish
a
major
swing
to
reference. In this case the major swing (X) equaled seven days. Just look at how the ensuing price action reacted to the angles.
To achieve a swing, consider the low day as day #1. The next day that exceeds the day's high without making a lower low is day #2.
27
Day #2 high must also be exceeded without making a lower low. This is day #3. There are now two higher highs and two higher lows. Day #3 high must also be exceeded and the forth and fifth going on to seven. So on the seventh day we must have another high over the previous day and that low must not be violated. The lowest low now becomes
the
(major)
SWING
LOW.
When
doing
this
analysis
on
a
weekly chart, you may have to lower the swing number.
There are two rules to go along with the other swing rules: 1.) An inside day is not to be counted (it is a neutral or nontrend day). 2.) The pattern of making higher highs must not be interrupted until the major swing is completed. Reverse these rules for a Swing High.
Other ways to determine swing points: Set Moving Average to 18 period.
Rule #1. Use a weekly chart if you are looking for longer term more powerful cycle lows and highs! When looking for a Cycle Low, there must be at least 7 consecutive bars below the 18 period moving average (the bars can touch the MA line, but ideally more than 50% of the bar must be lower than the MA line). This must be followed by at least 7 consecutive bars above the 18 period MA line. Once this occurs, you have a Cycle Low and a place to draw angles.
Rule #2. When looking for a Cycle High, there must be at least 7 consecutive bars above the moving average (the bars can touch the MA line, but ideally more than 50% of the bar must be higher than the MA line) followed by at least 7 bars below the 18 period MA. Once this occurs, you have a Cycle High.
28
When drawing angles off these lows and highs they will cross at future
points.
Angles
of
2x1,
1x1
or
1x2
which
derive
from
different swings of the past, may show a change in trend at that date
where
angles
will
distinctive
these be
angles the
1x1’s
cross.
1x1.
cross
one
The
Always another
most check when
significant to
see
drawn
of
where
from
these these
different
points of highs and lows of the past.
Different Contract Months When doing analysis, look at the most actively traded contract months of each commodity (usually the 3 nearby months). This gives an overall picture of the market that you are following. It shows each contract and its relationship to its own set of angles and if they have reached a significant angle of support or resistance. Take Soybeans as an example; If the May beans are showing that price has come to a support angle, the July or November contract may also have found support on different angles. This is a good indicator that at least a temporary support has been found.
Observe
one
month
such
as
May
reacting
to
the
even
numbered
angles, the 1x2, 1x4 and July reacting to the odd numbered angles, the 1x3, 2x3. Study each month to see which angle the contract has reacted to in the past and is currently reacting to. By doing this you will know the "LIVE" angle for future support or resistance.
29
Gann identified a total of nine significant angles, with the 1x1 being the most important: Gann Fan drawn from a low:
8x1
Very Fast Trend
4x1
Faster Trend
3x1
Fast Trend
2x1
Moderate trend
1x1
Average Trend
1x2
Moderate Trend
1x3
Slow Trend
1x4
Slower Trend
1x8
Very Slow Trend
Gann also observed that each of the angles can provide support and resistance depending on the trend. As stated before, on a down trending market, a reversal is signaled when prices move above the 1x1 angle. Chart 15 is a classic example of this price action. Price was moving down at the rate of the 1x1 and finally penetrated it to the upside. Once this took place, price rallied up to the 1x2 and stalled. then retraced back down. The Star* indicates the 1x1 and the arrows are the points of interest. A very high percentage of the time, prices will move up to the next angle (1x2). In other words, as one angle is penetrated, expect prices to move and consolidate at the next. Take the time to study chart 15.
30
Chart 15 A rule of thumb is that price will most likely mirror the angles it followed on the way down on the opposite side of the 1x1 as it moves on the way up. An example is if price found support on the fast moving 2x1 angle going down and then penetrate the 1x1 on the way up, then expect price to find resistance against the 1x2. Very high and very low priced securities will follow faster and slower moving angles respectively. The angle with the highest probability for support/resistance will depend on where price and time are from of its origin. The lower the price, the more likely the slower moving angles will offer support and resistance. Also
31
the higher the price, the faster angles will offer support and resistance. The 1x1 will always be the most significant of all. The next chart 16 is an extension of chart 15. It shows a horizontal line being drawn from the point where price penetrated the 1 x 1 angle on the way up. When we extend this line forward in time you can see how it offered significant resistance to price. Because Time and Price were square at that precise point at the 1x1, we can use this as a reference for the future.
Chart 16
32
Three ways to square time and price According to Gann There are three ways to square time and price. The following list of three are not necessarily in their order of importance. 1.) Squaring the range: One of his most important and valuable techniques is to watch a security when price is squared by time. When time and price come together, you will be able to forecast the important changes in trend with greater accuracy.
Chart 17 Chart 17 illustrates this established range. It remained in that range for several weeks or a few months moving up or down in this
33
range never getting more than 24 points outside from the bottom or top, a 1x1 can be drawn to find trend change points. Start the 45 degree angle from the highest and lowest point in the range and move it up to the top of the range and then down. We move the 45 degree angle back to the bottom, then back to the top of the range again moving it up or down over this range until the security breaks out into new low levels or new high levels. You will find that every time the 45 degree angle reaches the top of this range or the bottom of this range, there is some important change in trend. If price finally moves out of this range, then the horizontal line should only be moved if price moves back into the range and starts trading within it again. You should then begin a new set of angles at the new top or bottom and continue again. Always watch to see if the 1x1 angle is penetrated or when time is squared out again with price, which would be important for another change in trend. 2.)
Squaring
time
with
extreme
low
price:
The
next
important
number to square is the lowest price or bottom of any important low. Example: If the bottom of a security is 29, then at the end of 29 days, 29 weeks or 29 months, time and price are equal. Then watch for a change in trend as based on its bottom or the lowest selling price. As long as a security continues to hold one bottom and advances, you can always use this number noting every time it squares out. In the example on chart 18, Boeing had a low in March of 2009 of 29. Market-Analyst has drawn the square of 87 which is 3x29. Watch especially when the security reaches the third square, the fourth square and again the seventh and ninth squares of time.
These squares occur frequently on the daily or weekly chart. But on the monthly chart, it could take years to square out.
34
The Boeing chart 18 shows how trend changed at the end of the first
square
occurred
at
of the
87
(bottom
3rd
square
arrow). up
in
Then
price
another (second
trend arrow).
change These
harmonic numbers can be used to follow this chart up as long as the low of 29 is not taken out.
Chart 18
35
Chart 19 As a follow up to the previous Boeing chart, chart 19 is Boeing at the end of the 3rd square of 87 or 261 trading days out from the 2009 low of 29 (arrow). Nice trend change occurred. This is July 20th,
2010.
Once
again
the
number
3
is
very
significant
(3rd
square). And the harmonics of 29 are in place and will be until the 29 low is taken out.
3.)
Squaring
time
with
extreme
top
or
high
price:
The
third
important point to square time with is the extreme high price. The
36
time period must be carried across from the high of the daily, weekly or monthly charts, and the square of the top price in time must be noted and watched for f or a change in trend. If the top of an option is 56, then when it has moved over 56 days, 56 weeks or 56 months, it has reached its square in time and an important change is indicated. Both major and minor tops and bottoms on all time periods must be watched as they square out right along. Most important of all is the extreme high point on the monthly chart. This may be very high and work out a long time period before it squares the top, in which case you have to divide the price into eight equal time periods and watch the most important point like the
¼, ½, ¾,
The 1/3 time frame should also be watched, but most important of all is when time equals price. Lets go back to the Boeing chart. This next chart 20 is when Boeing
hit
capability
107.83 to
do
in
Gann
July
of
Squares
2007.
ending
Market-Analyst in
decimals.
So
has I
the
put
a
square of 107.83 at the top of the chart and beheld the results. I went to the third square out and what do you think I found? Yep a significant change in trend on the exact day of the end of the third square (arrow). This beautiful trend change produced a 20 point drop. This is some powerful information my friends. We can thank Mr. Gann for it when we reach that Mansion in the sky.
37
Chart 20 If market price is nearing a low point and squaring out a top, look to see if that time frame has other relationships to previous lows
and
highs
that
might
be
squaring
out
time
from
another
period. This would be a double indication for a change in trend. And this is very powerful! When referencing a previous high or low, Gann divided the larger numbers
into
eights
of
time.
Look
for
changes
in
trend
at
or
around these too. These three techniques of squaring price and time
are
very
powerful
if
you
are
a
position
trader
and
will
definitely help to find a change in trend.
38
Chapter 4 Angles of Support/Resistan Support/Resistance ce Some of the rules Gann put in place can relate to the use of angles. One of the more common rules is old resistance is new support. What once was a high and is penetrated by price closing above
that
high
is
now
support.
Most
traders
look
at
this
statement picturing a horizontal line on a chart. This rule can be applied geometrically to angles along with the typical horizontal line of support/resistance. The rule can also be reversed to say, Old
support
is
new
resistance.
There
is
a
technique
used
in
fundamental analysis which is drawing parallel channel lines from highs and lows for support and resistance. The technique may have been copied from the original work of the late Roger Babson in his Action
Reaction
Lines.
The
basic
principle
lines from lows and highs and connect
is
to
draw
channel
parallel lines to other
points to identify the consistency of market symmetry. The theory is taken from Newton's Law "That every action has an equal and opposite reaction".
This same principal can be applied in another method by drawing the 1x1 angle off lows and highs to find the rate and strength of market price. This technique can be used as a guide to finding channels for future support/resistance.
Getting back to the Newton's Law; when a market does top, there will be a high probability that the market will retrace to the down side at the same rate at which it went up. If not, then watch
39
for the next move up and the following retracement, for it may have the same rate of descent (an equal and opposite reaction).
Once the high is in, the 1x1's drawn down from the high will be a guide to the strength of the falling price.
When price begins to
move above the down trending 1x1, it is an indication that the retracement
has
been
completed
or
that
it
is
about
to
end.
A
trader can build a system based on this technique. This pattern in price movement has a very high repetitive percentage.
Market Strength Relating to Angles Consider this! When price is low the volatility will be low and as price moves higher volatility increases. Therefore, if we analyze any
price
movement
in
relationship
to
the
volatility,
we
must
consider which angles will be the live angles. This means when price is low and moving up or down at a slow pace, the more active angles will be the slow moving angles such as the (1x4). As the price moves higher we must use the faster moving angles to find support and resistance, 4x1, 2x1.
If price is above the 1x1 and above 50% of the square or overall range of the stock or commodity, look for the faster moving angles to provide support and resistance. And if price of a stock is above the $50.00 level, look for the faster moving angles to be most significant. Also if price is above the 50% level of the all time low and all time high, consider the faster moving angles to be the live angles. If price penetrates an angle or 50% to the downside
on
an
up
trending
market,
you
may
not
have
to
sell
immediately. You may see price moving up just under the rising angle
but
be
aware,
it
could
break
to
the
downside
any
time.
Reverse this rule on a down trending market.
40
Chart 21 On Chart 21 study the price movement in relationship to the 1x1’s drawn.
Price
is
moving
up
below
the
rising
1x1
(arrow)
until
another force affected it. This was in this case, the 1x1 coming down from the 50% point of the square. Gann stated if the market moves to the downside or away from a rising 1x1 angle it will almost
always
go
to
the
1x2
(slower
angle).
This
does
not
necessarily mean a change in trend, but it does show a slowing down of the advance which can be applied in two ways.
First, if the price is following the 1x1 up, then breaks away to the downside, look for price to "Gravitate" to the 1x2 sloping up
41
from the same reference point as the 1x1 and having a continuation of
the
trend
in
the
same
direction,
but
at
slower
rate
of
increase, unless the 1x2 is penetrated. At that point look for a change in trend.
Second, if price is following the 1x1 down then breaks away to the upside, look for price to find resistance at the 1x2 sloping down from the same reference point as the 1x1.
This slowing down of the advance can be misunderstood. What it means is the price levels reached will not be as high off the lows as the first advancing wave. There may be a sharp rally, but not a sustained one. There is a phenomenon in charting called right and left translation. Simply put, on advancing markets, the rally will be longer in duration than a falling falli ng market and vice versa. If you examine the Chart 22, you will see this translation.
Angle Symmetry & Elliott Wave In Elliott wave theory, the first impulse wave of a 5 wave up usually sets the tone for the rest of the price move. In Chart 22 I have drawn a set of Gann Angles from a low and connected the 1x1 to the first significant high point of the move up, which is wave #1.
You can see the impressive results on how the other Gann angles relate to price. The 1x3 showed resistance and the 1x8 offered support
3
times
before
a
big
move
to
the
upside
took
place.
Finding symmetry of price movement using this technique is not explained in Gann's writings. However, if you study some of his charts where he used just angles, you will see the 1x1 going from low to exact high in a move.
42
Chart 22 Once price symmetry is found, a trading plan can be set in place using these kind of setups. By observing your favorite indicators and market price when it
approached the 1x8 angle, a buy order on
a break out to the upside could have been put in place.
This
technique is quite effective day trading the hourly charts.
Here is the same technique using a different starting point. The following Copper Chart 23 has a set of Gann angles drawn off a high down to the first impulse wave low using the 1x1 angle as the timing line. As Price moved up, it reacted to the 1x4 on the
43
retracement. The breakout to the downside took place soon after Copper
rolled
over
to
the
next
contract
month.
Price
bounced
between the 1x2 and 1x3 angles then broke to the downside.
Chart 23
Chart 24 of the EUR-USD shows how market symmetry can be found by squaring the first part of a range. The only difference is the lines will be Fibonacci Fan Lines.
44
Chart 24
What I have here are three fan lines. .382, .50 and .618. These three angles are very important for future support resistance as you will see in the next Chart 25. Before we go on to that one, let's look at what occurred on Chart 24. After drawing the Fan Lines from the low to the top of the first impulse wave, price came down to the .618 angle (Dash) and found support. Three months after
that,
price
came
crashing
through
the
.618
angle
but
continued the move up. Now here is where Gann's statement comes in. What was once support will now be resistance. Lets look at Chart 25.
45
Chart 25 shows the same EUR-USD Daily moved
up
to
the
.618
angle
to
find
six months
later. Price
resistance
at
the
once
supportive angle and at that point began a long term down trend. I have observed this so many times in my day trading and I bank on it. It is an excellent tool that will work on any time frame. Of course nothing is perfect so use stops.
Chart 25
46
Drawing Angles from Double Tops and Double Bottoms I would like to answer a question that has been presented by so many traders; When price is at a double top or double bottom, which point should angles be drawn. To T o start with, do cycle number counts backward using Gann Square Numbers, Square of 9 Dates and Fibonacci numbers. Use either calendar day or market trading day counts. By doing this you will be able to disclose any cycles falling on these highs and lows. In Chart 26 I have used one of Market Analyst's many great features, the Square of 9 Dates.
Chart 26
47
The program allows me to look backward in time to see if there were
any
cycles
relating
to
the
tops
in
question.
The
Stars
indicate the Double Top. On Chart 26 I have referenced the left high and put the Square of 9 Dates going backward in time. The arrows point
out that four out of five cycles have referenced
either an exact high or low. In Chart 27 I have referenced the right
high
using
the
SQ
9
Dates
and
the
results
were
not
impressive. One out of nine cycles picked a low. The remainder were not significant. So lets do a set of Gann Angles off the left high and then the right high to prove my point.
Chart 27
48
Chart 28 In Chart 28, the set of angles are drawn from the left high. All kinds of support resistance and timing are found on the angles. Now lets draw a set of angles from the right high.
49
In Chart 29 most of the significant highs and lows are not even touching angles or for that matter just hanging in space.
Chart 29
In addition to this, you can look at the closing price of the double top. Which ever is higher at the top or lower at the bottom will be the point to draw the angles. If you do not have any reference material on Gann counts, the book "How to Make Profits Trading Commodities" is a good source for the aforementioned. It is a great book that shows Gann numbers and his cycle time counts.
50
Chapter 5 Applications & Stratagies Gann stated that if a perfect hole were to be bored through the earth from one side to the other and the through exact center of the earth, and if an object were to be dropped from one opening, that object would eventually gravitate gravitate to the exact center.
This
is his theory in the use of the 50% support resistance levels of price and time.
This same law applies to the 1x1 angle. This is the Gravity Angle. As stated earlier, some traders assume that one unit of price will equal 1 unit of time. This can be critical if the angles are going to be one of the confirmations used before taking a trade.
There are several indices and commodities that do not trade in equal numbers for minimum tic fluctuation. Here are a few.
S&P
500, NYFE, HOGS, PORK BELLIES, CATTLE, BONDS. Therefore, if the
1x1
is
not
scaled
properly,
the
50%
rule
will
have
no
significance.
This 50% rule applies to the 1x1 angle in Chart 30. One of Gann’s most effective tools when proving his mathematics was drawing the 1x1 angle up from zero price referencing a time frame of a major high or low then use that time frame to start a 1x1 angle up from zero. The following Boeing chart illustrates this very clearly.
Leading up to 911, Boeing was in a bear market. When 911 hit, Boeing along with most of the Stock Market began a price free fall.
It
eventually
found
support
on
1x1
angle
up
from
zero
referenced 12/08/2000 as shown on Chart 30.
51
Chart 30
The fast angle 2x1 The
2x1
fast
angle
along
with
the
1x1
and
1x2
are
the
most
important to watch. These three angles usually contain most price movement. They will also give g ive you most mos t of your timing. When rising prices follow the 2x1 angle and break away to the 1x1. This will usually occur in the middle phase (50%) of a move.
Keep time counts from the place where the angles were drawn and where they broke away from the 2x1 and you will have an idea, within a couple of days, where the current trend may come to an end.
52
2x3 and 3x2 angles The 2x3 and 3x2 angles are the angles most forgotten. They will sometimes be the rate at which price will move up from lows and down from highs. This will depend upon current market price and where it is in relationship to overall price. An example would be a
stock
trading
around
$33.00
or
$66.00
would
most
likely
be
sensitive to the 2x3 and the 3x2 angles which may offer support and resistance. Furthermore, there are some commodities like Gold that are sensitive to the thirds.
When price breaks away to the downside from a rising 3x2 it will most always go to the 1x1 and a high percentage of the time to the th e 2x3 which is the other side of the 1x1. In contrast, if price breaks away to the upside from a declining 2x3 it will most likely l ikely move
to
the
1x1
in
the
same
direction
the
past
price
and
most
likely
find
resistance at the 3x2.
Furthermore,
look
at
movements
and
observe
the
relationship to the odd and even angles and the fast and slow angles. This is the beauty of knowing the correct vector and using the proper scale for the 1x1. If the scale is right, then all the other timing angles will have significance with price movement.
1x4 and 1x8 Angles The 1x4 angle has a direct relationship to the 1x2. If price moves away from the 1x2, it will usually go to the 1x4 and find support or resistance, depending where overall price is. The 1x4 is half way between the 1x2 and the 1x8. This angle should be considered as a temporary resting place for price as shown in Chart 31.
53
Chart 31
Notice how price did not stay on the 1x4 for very long before it rallied up. Count time when price moves away from the 1x4 going back to the beginning of the move. Whether working with the 1x4 or or 1x1, always consider the time factor from where the market is in relationship to the beginning of a square. This time can be used for future time counts. If you are working in a square of 144 or 90 or 52 for daily or weekly charts, be sure to keep track of the ¼, ½, ¾, in time and price.
54
1x8 Angle: Though a slow rate of ascent or decent, the 1x8 is a very important angle. The reason is when a set of angles are drawn off any major high or low they represent a part of a circle. If a set of angles are draw off a low and price begins to move up, and if the move upward is the beginning of a new bull market, price will
most
always
retrace
before
continuing
its
upward
move.
Sometimes all the way down to the 1x8 angle. Sometimes a full 7/8's of the move up will be retraced geometrically, or about 1/4 of a circle. The 1x8 should be the barrier to keep the price from falling back to the starting point and possibly lower. If the 1x8 does not hold, price will usually go much lower.
This penetration and breakaway may not happen for a few weeks. In fact it could happen several months out into the future depending upon which chart is being used (Daily, Weekly or Monthly).
The Soybean Chart 32 is an example of this retracement down to the levels of the 1x8. Even though the 1x8 angle was penetrated, it contained price as it slowly moved up and built a base as the accumulation phase took place before the huge move up. In this chart, the whole phase took over five months.
55
Chart 32
There are several ways a trader can apply the 1x8 to their own strategies. First, it is necessary to understand what Gann meant when he said to buy at double and triple bottoms, & sell at double d ouble and triple tops. His strategy can also be used with the angles. This is especially true when applied to the 1x8 angle. The soybean Chart 32 shows price moving down to the 1x8 and forming a triple bottom.
However
if
the
chartist
is
using
horizontal
lines
as
support/resistance, it would not look like a triple bottom. Each time price went to the 1x8, it rallied for the first three times. Then the fourth time, it went through.
56
The fastest angle 8x1 When price is following the fast angle 8x1 either up or down it is in
a
power
trend.
Markets
that
follow
this
trend
line
will
experience a short "burst" then move sideways till it touches a slower moving angle. Then resume the trend at the rate of the new angle.
You
do
not
want
to
try
and
pick
tops
when
price
is
following this angle up or bottoms when prices are falling at the rate of the 8x1.
“It is never too high to buy or too low to sell”. Go with the trend and you will be your best friend. Do not get married to your opinion. The angles will give indication of a trend change or a sideways market.
1x1 Formula for Calendar Day Charts When
drawing
a
1x1
angle
on
a
calendar
day
chart,
use
the
following formula. The square of nine is helpful. The following example is drawing the angle up from a low.
First get the price from the high or low you plan to draw the 1x1 angle from and find it on the square of 9. Now do the square root of the price. This will give you the number of calendar days you must count out to the right to draw your angle. Now you need the price to intersect with this time frame. Locate the price from which
you
started
on
the
square
of
nine.
Then
go
180
degrees
around the square and find the number opposing it. Subtract the lower number from the higher. This number will be the difference in price added on to the starting point. Draw the 1x1 from the start to the intersecting points of time and price. You can then do parallel lines off other lows.
57
Chapter 6 TYPES OF SQUARES What exactly is a square when it relates to market activity? There is nothing in Webster's definition that can specifically define a square and how it relates to price and time. However, Gann gave an ongoing flow of examples on how the two elements of time and price can be squared out. In this study, there are two types of squares. They are the Static (stable) and the Variable (price adjusted). They can be used separately or together to show time and price resistance points.
The static square gives natural resistance areas which relate to important
numbers
of
time
when
referencing
historic
highs
and
lows. The time price resistance points formed from the stable type are fixed and do not change. Examples of a static square are the Square of 144, the square of 90, the square of 52 etc; So if we take 144 days in time from a starting point and 144 units of price up or down, and draw them on the chart, we have a square according to Gann. However if we look at this on a chart, it will look like a rectangle. Regardless, the numbers form a Mathematical Square. They can also be referenced from the Zero point in time which is the beginning of trading for a stock or commodity (natal date), or a
major
low
or
high
in
price.
These
squares
and
the
variable
squares are what Gann said to watch especially out to the third, fourth, seventh and ninth time frames.
58
Constructing a Square Squares consist of geometric angles, support resistance lines and timing. The price and time support resistance levels of a square should include 1/2, 1/4ths and the 1/3rds. These can be applied to static or variable squares, and squares of the range.
To get away from the static and variable squares for a moment, lets examine the squaring of a range. Take the most recent range from high to low and apply the components of a square to the difference in price. The place to start is the most significant high or low. This does not mean you can only use the lowest low or the
highest
high,
because
a
square
may
be
applied
to
any
significant swing point. Once a major swing has been identified it can be used as a reference point for measuring time and price.
Major highs and lows in market price provide you with the starting points. The first thing you want to do is divide the price and time into quarters and thirds. Some suggest eights. The goal in doing square analysis is finding the symmetry of the markets price movement.
The
angles
are
an
instrument
to
find
that
symmetry.
Start the angles from the high and low end of the square’s range. Then move out in time and do the same to the right of the starting price.
Getting
back
to
the
static
square.
If
you
are
working
with
a
static square of 90 on a daily chart and the vector is 1.00 such as in Gold.
Multiply the square number (90) times the vector
(1.00) and you get $90.00 in price. If you are coming off a low, then $90.00 off the low will be the top of the square of 90. Now draw the angles from the four corners of the square 90 dollars higher and 90 time frames to the future. The angles at the end of
59
the square in time will be drawn back toward the beginning of the square. Now draw the midway point, which is 45 dollars up from the low. These angles should also be drawn from the midpoint in time. Do
these
both
forward
and
back
in
time
and
price!
Note:
When
drawing the midpoint angles they must go up and down. Try to keep the square from being too cluttered with angles. Just use the 1x1 and the 1x2 going up and down. To get the 1/4th divide 90 by 4 and we get 22.5. When we divide 90 by 3 we get ge t 30, which are the thirds. If your computer program has the capability of doing cycle lines, then it will be of great help to you and save you a lot of work. Once again if you have Market Analyst, this can be done with a click or two of the mouse. If not, then draw the lines in by hand. Next, complete the square using the 1x1 and 1x2 angles.
60
Chart 33
I
have
constructed
Chart
33
using
Market
Analyst.
Numbers
1
through 8 label the 1/8th increments of time in the square. Notice how 1/2 in price of the square stopped market price from advancing (the thick horizontal line) (note the minor top). Once price moves above 1/2 of the square, a significant
barrier will have been
broken. Another area of interest in terest is how h ow price stayed above the 1x1 until just before the 1/4 in time. Once a low was made during the 1/4 time, price moved up to the 1x1 touched it three times and retraced down to the 1x2.
Price can be monitored for strength based on the angles. The 1x1 coming down from the top left corner of the square is important to
61
watch. When price crossed above it (at the 2/3 time frame), it is in a strong position. If price moves above both 1x1 angles, expect an acceleration.
Chart 34
Chart
34
illustrates
the
third
square
out
in
time
from
the
originating time frame (STAR). The star is a major low on the Coffee chart. The three arrows are the end of the 1st, 2nd and 3rd square of 90 in time. Another significant point to mention is when the third square reached it's end in time, price moved up to the end of the forth square of 90 in price.
This is a great example
on how to use the squares to find trend change. When the signs say it is time, then get ready to pull the trigger.
62
Chart 35 is a variable square which can be used as a measuring device referencing major highs and lows of market swings and uses the price. When doing these squares a trader will be transfixed at the amazing relationship of numbers that Gann discovered. Chart 35 is an example of a variable square in use on McDonalds Corp.
Chart 35
The square referenced the April 12, 2013 high of 103.43. Using this number as the square itself, we have some impressive results. The first arrow to the left shows price coming down off the high and finding support at the end of the first square in price. The low came in almost exactly at 103.43. The second arrow shows the end of the first square in time. The timing at the end of the third square (3rd arrow) was a very significant high. This time frame was caught in the middle of a major topping cycle. This
63
square overlay is what Gann relied on so much in the latter stage of his trading career. This is why he was so meticulous about the correct scaling and the angles being drawn from the key locations.
On Chart 36, I have constructed a static square of 90 on a Sugar chart. Ninety days over in time doesn't necessarily mean that the 1x1 will be 90 cents higher at the end of the square. This isn't going
to
work
because
Sugar
has
never
reached
90
cents.
The
highest high I have on my charts is 60.05 cents made in 1974. That said, this is a perfect setup for a square of 60 off that high.
Chart 36 is compressed so you can see how the number 60.05
is
harmonic out to the sixth square. Price made a significant top at that time frame and continued its downward trend. How many squares of 60.05 should be watched? In Chart 36 we find 6, which is 1/10th of 60. Therefore keep an eye out on the 12th, 18th, 24th, etc; This can be days, weeks and months. Since 1974 is many months back in time, I would keep a close watch on the monthly charts. The monthly sugar chart below shows the truth of these harmonics. In November of 1980 which was exactly 72 months (6 years) out, there was a major top in sugar.
64
Chart 36 is using the variable square of 60.05 off the Nov 20, 1974 high in Sugar.
Chart 36
The arrow to the left is the beginning of the square of 60.05 and the arrow to the right is the third square out in time. The third square yields very good results by putting in a significant top. Since the number three is harmonic with 60 all 1/3rds should be watched carefully. Using Market Analyst Software, makes this type of analysis easy and accurate.
65
Which Square is the Master? Gann said (in 1954) his most significant discovery was, working with
his
"MASTER
TIME/PRICE
CALCULATOR.
These
clear
plastic
overlays that he used were scaled to charts of various stocks and commodities he pursued. He knew which square worked best with the markets he traded. These Master squares are not just the square of 144. You can find very good results when using the variable square from the major highs and lows. However, once you find the master the square in the market you trade, you will be amazed how the numbers fall in place with the harmonic time and price areas of that square. You will then have the ability to predict time/price.
All
right,
let’s
find
which
squares
work
best
with
certain
markets. Gold like the Soybean market has its own square it works best
in
(sq.
of
90).
The
meats,
Financials,
Softs,
and
other
commodities as well as Stocks work well with other static squares. Bean oil works very well with the square of 52 on the weekly charts.
Test various squares in the stock or commodity you trade to see which is best. I follow 18 markets and several stocks and have come up with the squares that I feel work best with each of these. Take
into
consideration
the
scale
when
choosing
a
square.
Do
division, multiplication, addition and subtraction, to find some harmonic rhythm in the numbers. Look at the all time high and low prices. If you study and work with various squares and scales, you will find the harmonic numbers.
Market Analyst has the capability to produce the master time/price overlay that Gann used by just clicking on the Gann Square option. The
overlay’s
are
scaled
automatically
to
the
number
of
your
66
choice. Chart 37 is a good example of the overlay being used on the stock Wells Fargo. The high was 26.38 and the square being used
is
the
variable
square
of
26.38.
The
results
are
truly
spectacular as Chart 37 illustrates.
Chart 37
I used the 26.38 high as a starting point. Count the squares over to the right and down to see the price support/resistance along with trend changes at the key points of the square in price & time. If you look closely, you will see the price coming to a peak at the end of the 1st square (left top arrow). Two and 1/2 squares
67
out in time price peaked (second arrow top). Four squares down price found support several times as pointed out by the two bottom arrows.
Finally,
four
squares
over
in
time,
price
peaked
(top
right Arrow).
Time Price Overlay In the last years of his life, Mr. Gann said that one of his most important
discoveries
was
this
time
price
over
lay
or
Master
Square. At that time computers were not in use and it was a very time consuming task to work up a chart that would include the square an individual stock or commodity was working in. So, when creating this overlay for a particular stock or commodity, Gann took into account the slope of the 1x1 and all related angles, and used
the
overlay
from
each
major
high
and
low
to
get
Time
Clusters.
These timing clusters are a major part of his discovery. When he would
place
his
overlay
on
the
chart
and
referenced
several
different major highs and lows, he took notes on the dates of price and time clusters coming together in the future.
One of the techniques Gann used was multiple squares. By starting a new square from the end of the first square and keeping the old square in place and extending the significant timing angles and time frames, he found important points of trend change. When the significant timing points (½ & ¼) of two or more different squares overlap, he said these were significant points of time and trend changes occurred at these points.
68
The scaled overlays
Gann
used
for
each
stock
and
commodity he
traded included the square of 144. He used this in addition to the other
squares
confirmations
on with
the
charts.
other
By
variable
doing squares
this, for
he time
had and
several price.
There was a time when he had a full time staff of people working for him performing these duties.
With the age of the computer, co mputer, it now takes a fraction of the time and effort to accomplish the same thing. The following Chart 38 is a time, price overlay of the square of 144 when applied to General Electric. The High referenced was the August, 2000 High of 60.50.
Chart 38
69
Market Analyst
generated
the
Chart 38
overlay with just
a few
entries into the data section then click and the overlay appeared. Notice how price gravitates to the star clusters where the angles come together at the half way point of the square and the end of 144 (Arrows). As you can see, these turning points in time are not just a fluke. They are continuously performing for us.
The Square Within the Square. This is the dimension Gann spoke of when price was moving through time. If you look closely at
the
overlay,
you
will
see
these
squares
within
the
larger
square.
Chart 39
70
Chart 39 of General Electric is the continuation of the square of 144 drawn from the August, 2000 high. The four round arrows are pointing to the Square Within the Square. Look hard and you will see the border of this square. The cluster of price came in at exactly the end of the third square May, 2002 (arrow) and directly in the middle of the inner square.
It is worth mentioning that the scale is in .10 cent increments rather than in dollars. If you were to do a square on this chart in dollars, the top of the square would be over 175 dollars and the angles would be ridiculously out of proportion. However, if the price of the stock were to go over 100 dollars, you could increase
the
scale
to
1.00
increments.
“As
price
goes
higher
volatility increases” and you must adjust accordingly.
Constructing a Square using the 1x1 This is for the trader who does not have a trading platform that can do Gann Squares automatically. If do have one, this section may enlighten you on how to use this in your trading. Chart 40 is Natural Gas. It shows how time and price can be measured using the 1x1. To do this, break time down into eights of the square you are working with. The square in this example is the static square of 144. Draw a 1x1 angle off both the price low of each quarter of the square and down from the price high (top of the square).
By doing this you are essentially forming a Gann Grid. The Grid can give a clear picture of market strength and weakness. Take a look at the movement of price in relationship to the 1x1's as time moved along. Gann's rule, "if price is above the 1x1 it is in a strong position, if below, weak. According to the 1x1 angles in this static square of 144, price is in a strong position based on
71
the 1x1 angle coming up from the low of the end of the square (arrows).
Chart 40
If you study the chart closely, you will see the smaller squares forming the overall large square of 144. The first horizontal line up from the bottom is the first eighth in price. The angles moving up
and
coming
down
are
referenced
in
time
from
the
quarter
segments of the square.
When constructing a square like this, you may need to extend the angles from a second third and sometimes a fourth square up in
72
price and time. Since the 1x1 is the most important angle, it will forecast the timing points of change in trend.
Let's do a follow up on chart 31 to see where price moved after the end of the first square, since it was above the 1x1 angle. In Chart 41 I have extended the 1x1 up from the low at the end of the first square. I have also drawn a 1x1 down from the top price of the second square of 288 as a reference point. Notice how price reacted to that angle. It showed weakness because it never touched it after three attempts.
Chart 41
73
Chart 41 of Natural Gas clearly demonstrates that as long as price remained above the 1x1 it was in a strong position. When price moves below the 1x1 it may be an indication that the current trend is nearing an end. The 1x1 channels act as a guide line and must be set up in this way using key reference points that are derived from the points of a square.
I have started the angles from the same ¼ and ½ of the square in time to show the effect they have on Soybeans. One of the most important places to consider is the 50% level, especially in time. Always draw a 1x1 angle from the 50% in time, from both the top and bottom going forward and back in time. By doing this you will see how the market reacted to these angles and be prepared to act.
When market price is moving into the last days of a square, watch the
(1x1,
1x2)
angles
for
resistance
or
support.
If
they
are
penetrated on a close, it is an indication that either the trend is changing or accelerating.
74
Chart 42
Chart 42 is absolutely phenomenal. During the week of August 15, 2008 Hogs made a high of exactly 90. After applying a square of 90 to this weekly chart, you can see how time and price came together exactly 90 weeks later and how price came back up to 90 again. It doesn't get any better than this.
The above weekly chart of Lean Hogs is scaled using the tic value of .025 of a cent. Four tics will equal .10 of a cent or 1/10 th of a dollar. As you work with these squares, you should make notes for each security you trade as to which square works best.
75
When price moves to where it is equal with time, especially at a harmonic
number
to
the
square
you
are
using,
there
is
a
high
probability for a change in trend. It may not be the biggest bigg est trend change in years, but it should be tradable.
76
Chapter 7 Harmonics in Numbers
I'm trying to make these chapters flow smoothly so when we move into the Square of 9 chapter you can apply some of the things you have learned. The harmonics of a stock or commodity are numbers that will work in harmony with price movement to offer support and resistance in price and time. In order to find these harmonics, which also relate to the angles, a few things must be taken into consideration.
Each security
traded has
its
own
harmonic number. Look at the
given facts to find these numbers: 1.) What is the contract size? 2.) What is the minimum tic? 3.) What is the minimum tic value? 4.) What is the highest high and the lowest low in the history of that stock or commodity then get the medium price? 5.)
What
is
the
beginning
date
of
trading
for
that
stock
or
commodity? 6.) What was the price of the stock or commodity on the first trade of the first trading day? 7.) Where is the current price trading? All these are used to confirm the harmonic balance of Time and Price which relate to significant highs and lows.
Example; if the contract size is 60,000 lbs for Bean Oil and the minimum tic is one. The Minimum tic ti c value is $6.00 which may prove to be a division of a high or low. The all time low is 7.15.
77
Multiply that by 10 and you have 71.50. The all time high in Bean Oil is 71.26 cents Adding these two together, equals 78.41. Divide by 2 to get the mid point of 39.20 cents. There are now five harmonic numbers. 6.0 (minimum tic value), 7.15 (all time low), 71.26 (all time high), 78.41 total of two and 39.20 (medium). In addition to all this we also have a harmonic resistance point of 1/3 and 2/3 increments of the all time high and low. All these calculations These numbers
can
be
are
used
for
daily,
weekly
or
monthly
charts.
not only used for price resistance, but for
time.
A few examples are the 71.26 all time high could be used as a square of 72 or 144 (Gann's Master Square) and its time counts will be in days, weeks or months as follows: ¼ = 36, ½ would = 72, 1/3 will be 48. The mid point number of 72 could be related to the square of 36, 2 x 36 = 72. The all time low on Bean Oil is 715. Times 4 is 2860, the most recent weekly chart on Bean Oil shows a 2900
top.
Chart
43
is
more
proof
that
the
harmonics
of
these
numbers work.
78
Chart 43
One of the more interesting points of this chart is the end of each square in time. The first square had a very tradable low come in at the 50% price level which was at the end of the 52nd week in time. At the end of the second square price broke above the 52 in price (upper horizontal line) on the exact week ending the second square. This is an indication of higher prices, especially when price moved above the 1x1 line moving up from the end of the first square. You can see the importance of extending squares over and using the 1x1 angles at these strategic locations.
Gann's rule of three can be applied in several ways. When working with a security like the S&P 500 and price is 1186.50, make the
79
number a three digit number and drop the decimal point. This will be very helpful when doing your angle an gle analysis on the square of 9. So 1186.50 would be 186. This can now be applied to timing when extended out 186 days, weeks, or months. All these time frames will be a harmonic point and in direct relationship to price.
The remaining harmonic numbers are the date and price of the first trade of the security. The price will be an effective harmonic number when using it for a time measurement. Example; if the first trade of June Treasury Bond Futures is 102-17, then 102 days out in time is the first place to watch for trend change on the June Bond chart. If you like, you can break the 17 down to a decimal. We
do
this
by
multiplying
17
times
3.125.
This
is
53.125
and
rounded off 53. We now have 102.53. You can use this number or use the
rule
of
3.
I
prefer
the
rule
of
3
so
it
can
be
easily
translated to the square of 9. But for those who want extreme accuracy, use 102.50.
The
first
day
the
June
T-Bond
Futures
traded
is
significant
because you can measure time from that date. According to Gann, the timing points to watch for will be the anniversary date and the 180 degree point in time. 180 degrees on a calendar is 182.5 days. There are astrological calculations that can be applied to this, but that is a study in itself.
When Gann taught his courses in the 1930's, he showed how he used the weekly charts in doing his forecasting and he pointed out how the novice trader has a tendency to look only at the daily charts and even immerse themselves in the ticker. Some look only at the hourly, and some the one minute charts. It depends on what kind of trading you want to do.
80
The more price history you have, the better your analysis is going to
be,
especially
if
you
are
using
the
weekly
charts.
It
is
preferred to have at least 20 or 30 years of daily data on any given stock or commodity and a program that can convert this data into weekly and monthly charts. Gann did research on the Dow Jones dating back to the beginning of the NYSE in the late 1700’s. He used the grand cycles of 60, 80 and 100 years. The markets I trade have data which dates back to the 1910’s and Gold to 1975. My stock market data for the NYSE goes back to the 1880’s.
Setting up the data to analyze a stock or commodity can be done in two ways. As explained earlier, the first type of chart is the Market day chart and the second chart is the calendar day chart. This incorporates each day of the calendar. When drawing angles on a chart, this is very important.
When drawing angles on a weekly chart, you get the entire years history in a format consistent with time and price (no gaps). Not one week is left out. For all practical purposes, Gann angles, drawn on a weekly bar chart, present the most useful perspective when seeking price and time. Gann often said that the weekly chart was more important than the daily chart. Gann angles are still quite flexible and can be used for any time frame, as long as the time/price proportions are correctly calculated.
There are a couple of reasons to have as much data available as possible. The angles and time cycles will have an effect on a market,
years
later.
The
further
out
in
time
from
the
origin
(major high or low), the more powerful the 1x1 angle influences price and time. Therefore if price moves to this key angle, a change of trend should
be expected. This is
most
prominent on
81
weekly charts. The trend reversal should be confirmed by using the daily
charts
and
checking
the
time
cycles
along
with
some
indicators and a system or methodology to enter the market in the opposite direction of the current trend.
Years ago, when I worked as an Associate Broker for a grain firm near Chicago, I had my face stuck in front of a computer screen for the better part of the working day.
I watched the 5, 15, and
45 minute charts for the grain markets. By doing this my clients received
a
shorter
term
perspective.
I
therefore
looked
for
clients who had a short term trading approach.
Since then I have changed my impatient ways and taken the longer term approach. Going with the trend and using the weekly charts. For me, this is the most comfortable and profitable way to trade.
The next Chart 44 is a very fine example of what can be done with a weekly chart and how to utilize the square of 144 with the weekly’s to predict trend change. Notice the areas where the 1x1’s from the top and bottom of the square cross! At each intersection of time, there is a trend change.
82
Chart 44
When
analyzing
markets
using
weekly
charts,
it
will
require
patience. Most traders do not have the patience to wait for the move to culminate. This is a key element to have in successful trading. The ability to have that "CALM ENDURANCE" is very hard to develop.
This
is
Waiting
even for
more
the
pronounced
setup
to
when
culminate
viewing can
be
the
monthly
torture
to
charts. some.
A
monthly chart should be viewed at least twice during the month. During the first week and last week of trading are the times when most professional traders view the monthly charts. This will give the trader an idea of whether the previous month's high or low has
83
been exceeded and to see if the market ma rket will close near the high or low end of the range. A quick check to see where the market is in regards
to
the
1x1
angle
should
be
priority.
By
viewing
the
monthly charts one can also see if the major trend is up or down, allowing the trader to either sell the rallies or buy the dips.
There are quarterly charts and yearly charts, but unless the data is available to go way back, it would be futile to keep these types of charts. A Friend of mine has an office in his family's Grain
elevator.
Pasted
along
the
inside
walls
are
corn
charts
beginning from 1899. It's very nice to have that kind of data available. But most people do not have that luxury. If you could find a broker who has access to long term data it would be a plus. If this data is available, major highs and lows can be used as starting points for the future trend changes that will occur. At that time, major swings in the market can be used to start the angles and squares.
84
CHAPTER 8 Trend Line Indicator There is another method Gann used in his trading. He called it the TREND LINE INDICATOR. You can use any of his methods you wish or all of them. The following shows how to obtain the minor trend. You should always keep current daily charts with Open, High, Low and Close. Place your Trend Line on this Daily Chart as it defines the minor Trend of the market. Use green color Trend Line for advancing
(Up-trending)
markets.
Use
red
for
declining,
(down-
trending) markets. The Trend Indicator or Trend Line is obtained by following the daily
price
activity.
As
long
as
the
market
is
advancing
and
making higher tops, the green Trend Line moves up each day to the highest price of that day and continues to move up as long as the market makes higher tops. The bottoms are usually higher also, but they may be the same or up to 3 tics lower than the bottom of the day where the Trend Line is at its highest point. A change of minor trend is indicated when the market moves 4 tics or more below the highest bottom, you move the Trend Line down to the
bottom
of
that
day,
using
a
red
color.
Then
if
on
the
following day, the market moves down to a lower bottom, the red Trend Line moves down to the low of that day and continues to move down
as
long
as
the
market
makes
lower
bottoms.
The
tops
are
usually lower also, but they may be the same or up to 3 tics higher than the top of the day where the trend line is at its lowest point. The following chart is an
85
example of what a swing chart looks like using the principle of the trend line indicator.
Chart 45
Trading the Trend Line Indications Even though the Trend Line Indicator was a basic following of the trend by the use of rules, it was an essential part of Gann's work while in a trade several
rules
to
or just before trade
by
when
he entered into using
this
one. He gave
indicator.
Here
is
another one of them. Gann's words are in Quotes. "The simplest and easiest rule is which ever security (stocks or commodities) that you start trading in, place a stop-loss order 4 tics under the last Trend Line bottom and never use any indication
86
to sell out until the Trend Line breaks 4 tics. Then reverse using the same amount and follow it down with a stop loss order 4 tics above the most recent Trend Line top until your stop loss order is caught then reverse again and go long. These 4 tics is an old unit Gann used in his time. You may have to adjust this to use more than 4 tics to allow for today’s volatility. Always allow your Trend Indicator to be your guide and when it turns down, follow it and do not expect a change until the Trend Indicator shows it. That is what the Trend Indicator is for, to keep you with the minor trend of the market. And when it changes, you must change and reverse your position accordingly.
This rule will make the cautious trader a very large percentage of profits each year if he (or she) trades when the market is active. ac tive. The higher the price at which a security is selling, the more money this rule will make."
Important Gann Numbers: Trading Days = Calendar Days
Weeks
=
Months
5
=
7
7
=
1.5
20
=
29
29
=
7
24
=
35
49
=
70
*The sum of numbers 1 thru 9 = 45. *45 is 1/8 of 360. This is another reason for the importance of the 45 degree angle. The total of the
following numbers 18, 27,
36, 45, 54, 63, 72, and 81 = 396 representing the sun, to which was allotted the sum of the numbers 1+2+3+4+5+6+7+8 = 36. 36 from 396 is 360, while the remaining 360 represented the twelve zodiac signs of 30 degrees each, in other words, the solar universe. Then again, all natural
geometry proven to be true in
natural
87
forms, circle, squaring, rates of vibration, etc., are carried out in multiples of 9.
Every arithmetical quantity into which 9 enters is reducible to a lowest common factor of 9. The numerical symbol for Jehovah is 26 (10+5+6+5) If you add 144, (12x12 square) to 180 (the number of degrees
in
a
triangle),
you
get
324
and
then
add
36,
the
Pythagorean numerical symbol of the Sun, you get 360. Or, if you subtract 144 from 180, you get 36, the numerical symbol of the Sun. 144 multiplied by 180 gives us 25,920, the number of years in a complete precession of the equinoxes.
The Number of man is 666. It is the sum of all the numbers in sequence from one to thirty-six added together. 36 is the “Grand Number of the Sun. Another way to arrive at 666 is to add 396 (the philosophical number of the solar system), to 270 (the gestation period of man, 9 months x 30 days =270 which is ¾ of the circle. This gives 666 again which is the number of man. Gold in ancient cabalism
is
the
symbol
of
the
solar
light
and
the
cabalistic
number of the Sun being 36 makes gold and the Sun Synonymous.
If these numbers may put question in your mind, then look harder at them and try to relate them to cycles in the markets. Ask yourself a few questions! What makes a complete cycle? What is the significance of symbols like those of God’s number 26....times 2 = 52
weeks
in
a
year?
26
is
essentially
180
degrees
of
some
preceding cycle. So, 180 degrees being an opposition, will be the opposite of the start of the cycle. In other words, a low will be a high on the 26 time count. Work with the numbers and you will indwell them into your mind.
88
CHAPTER 9 Square of Nine
Illustration 46 The above illustration is a copy of Market Analyst's Square of nine. Gann called it the "SPIRAL CHART". In my humble opinion, you'll be hard pressed to find a better and more thorough Square of 9 than this one offered by Market Analyst. That said, I'd like to
lay
a
basic
ground
work
and
give
you
a
glimpse
of
some
techniques that this multi-dimensional tool and Master Calculator can do. The lessons are universal and open for interpretation.
89
This tool is used world wide by many Gann Traders that are seeking price and time clearly
how
harmony. Price
I
and
believe in Time
work
this chapter, you'll in
harmony
to
see show
support/resistance and timing for trend change. An in depth study of
this
tool
would
be
a
book
in
it
self.
There
are in
fact,
several books written on this subject. One I would recommend is written by Daniel Ferrera Of Sacred Science. His insight is truly remarkable and eye opening and worth the money he is asking. As we progress, you'll see some of the capabilities of Market Analyst's use of this great tool.
Illustration 47
90
Basics of the Square of Nine The Square of 9 is a spiral of numbers starting with number one in the
center
or
apex
of
immediately to the left.
the
Great
Pyramid
with
the
number
two
The remaining numbers spiral around the
center in a clockwise direction going up to the number 9. This completes the first cycle of numbers around the center. 10 through 25 completes the 2nd cycle, 26 through 49 completes the 3rd , etc… This
arrangement
of
numbers
creates
a
very
unique
square
root
relationship with other numbers on the chart (covered later).
Illustration 48
91
One important area to watch are the numbers on the Cardinal Cross (Illustration 49). Gann referred to these often when talking about trend change.
When
support/resistance
major for
tops
time
and
and
bottoms occur on the cross,
price
can
be
found
in
market
movement months and sometimes years later.
Illustration 49 Gann
also
pointed
out
that
the
45
degree
angles
were
very
significant when it came to support/resistance and trend change. Illustration
50
shows
these
angles
with
the
90
degree
lines
darker.
92
Illustration 50 If we divide 360 degrees by 6 we get 60 degree increments as shown in Illustration 51. These are important in some commodities like Gold.
Gold
is
the
first
commodity
I
traded.
Over
the
years
I
noticed certain patterns and repetitions that are quite reliable. The Sextile angles are one of them. I have noticed more times than not that when I draw Gann Angles on the chart, Gold will react to the 1x3 or 3x1 angles. This may have something to do with the Natal Date when Gold started trading.
93
Illustration 51 These complete cycles around the Square of 9 are called squares and they end with an ODD number on the 225 degree angle on the bottom left of the square progressing outward starting with 9, 25, 49, 81, 121, 169, etc; This same progression is found with the EVEN numbered
squares which is found on
the
opposition of the
Square starting with the number 4, and progressing out 16, 36, 64, 100, 144 and etc; as shown in Illustration 51A
94
Illustration 51A The square root of 9 = 3. The square root of 25 = 5. The square root
of
49
=
7,
the
square
root
of
81
=
9
and
etc;
The
significance of these numbers is as follows: Our
numbering
system
is
broken
down
into
nine
digits
used
in
measuring everything and we cannot go beyond 9 without starting over to repeat and using the 0. If we divide 360 degrees by 9 (Number of degrees used by the Square of 9), we get 40, which measures 40 degrees, 40 days, 40 weeks, 40 months and shows why bottoms and tops often come out on
95
these angles measured by 1/9th of the total circle. If we divide Gann's major cycle of 20 years or 240 months by 9, we get 26 2/3 months, making an important angle of 26 2/3 degrees which can be translated into days, weeks or months. Nine times nine = 81 which completes the first square of nine. Make a note on how these angles run from the main center. The second square of nine is completed at 162. Note how this is in opposition
to
the
main
center.
The
third
square
of
nine
is
completed at 243, which would equal 243 months or 3 months over Gann's
20-year
period
and
accounts
for
the
time
which
often
elapses
before the change in cycle, sometimes running 3 months
over
more.
or
Illustration
52
The how
fourth the
square angles
of of
9 45
ends
at
degrees
324. cross
Note at
in
325,
indicating a change in cycles here. To complete the 360 degrees requires four squares of nine plus 36 over. This would be 4 x 81 = 324 + 36 = 360. Also note that 361 equals a square of 19 times 19, thus proving the great value of the square of nine in working out the important angles and the proving
of
discrepancies. Once
the
number
19
has
reached
its
maximum it can start over again with a zero or 20.
96
Illustration 52 Getting back to the square root relationship. If you want to move around the coordinates of the Square, you take the number you are interested in (such as the all time High or Low price), calculate the square root of the number, then add or subtract 2 from the root and re-square the result. This will give the adjacent number in the next cycle out. It helps to round off numbers to a 3 digit number to make it easier for angle analysis on the Square. For
an
example;
609
which
is
the
contract
high
of
July
2001
Soybeans has a square root of 24.677 minus 2 = 22.677 times itself to re-square it out again and you get 514 which is one full 360
97
degree cycle in toward center. Each time you subtract 2 from the square root it will be the next adjacent number going into center. If you add 2 to the square root, it will be the next adjacent number going away from center. If we use the same number 609 and subtracted 4 from the root (two complete cycles into center) and re-square the result (24.677-4= 20.677^2 = 427) we would get 427. This would be two full 360 degree cycles in toward center. The seasonal
contract
low
for
July
2001
Soybeans
was
422.
Incorporating these techniques allows us to calculate coordinates of Astro cycles that are: Conjunct (360 = +/- 2 from the root), Opposition (180 = +/- 1 from
root #), Trine (120= +/- .666) (240= +/- 1.333), Square
(90 = +/-
.5) (270= +/- 1.5) and Sextile (60 = +/- .333) (300 = +/- 1.666). This technique is extremely useful for finding coordinate squares on the square of 9 that are making hard aspects to a previous position
on
the
wheel.
We
can
also
use
Fibonacci
numbers
in
conjunction with the square root number. .236, .382, .618, .764 etc. Also,
Gann
believed
the
numbers
that
square
the
base
of
the
pyramid (the 4 corners of the square) to the “gravity center” and also the numbers that run straight vertical and horizontal from the “gravity center” in the form of a cross (cardinal numbers) were very important in balancing “Price & Time”. He was basically looking for astronomical longitudes to balance with price on these key angles. This is a book in itself. Pythagoras said “Units in a circle or in a square are related to each other in terms of Price & Time at specific points.”
Gann was pointing the reader of his
work to clues that would allow his students to unlock the code of his writing style.
98
Time and price: Around the outer perimeter of the Square of 9 is a circle with months and days, Illustration 53. In Market Analyst, these dates can be changed to the 24 hour clock for day trading. The circular calendar starts on the right-hand side of the wheel on the same horizontal line as the center block.
The date is March 21st and
refers to the start of the “natural” year in the season of Spring with
the
Sun
in
Aries
.
The
dates
move
around
the
circle
clockwise completing the calendar. This relationship allows you to quickly identify dates that are Conjunct, Opposite, Square, Trine or sextile to a past calendar date. Furthermore, we can also use a first
trade
chart
(Natal
Chart),
i.e.
horoscope
to
locate
sensitive longitude positions that are being aspected by planets from the outer circle making them “Live Angles”! Doing planetary work
on
the
Square
of
9
requires
a
deep
understanding
of
Astrological symbols and their meaning. This in and of itself is another book of which many have been written.
Gann
wrote
Course
for
about
this
Stocks
by
natal
horoscope
saying
“The
technique
dates
when
in
his
Master
companies
are
incorporated and the dates when stocks are first traded on their respective
exchange
cause
them
to
make
tops
and
bottoms
at
slightly different dates than these dates for seasonal changes” (Reference the Gold). Essentially these "Vibrations in Time" are nothing more than price and/or time harmonizing on an angle of the circle of the square of 9. Gann referred to this in his example of the musical harmony
between notes. I will try to
simplify the
concept by using my own example.
99
Illustration 53 If a group of instruments are playing the same note and one is out of tune, then an unpleasant sound can be heard. When they are brought up to the same vibration, or in tune with each other, ot her, they will harmonize and have a pleasant sound to the ear. Musical notes and sounds are nothing more than vibrations. Time and price coming together has a vibration too and is just as powerful. My Dad used to tune and an d repair pianos. pia nos.
When I was younger, I went
with him on occasion to see how he did this. At the beginning of his career, he used tuning forks. Years later and with excelling technology, he was using an oscilloscope.
100
The tuning fork and its concept is one of the most interesting things I have ever seen and heard. A tuning fork vibrates X amount of times per second depending on the note it represents. These vibrations create a vibration wave. Once the fork is tapped on a solid surface to create this sound, it hummms for quite a while. Once the tuning fork is tapped and the base placed on the piano, and the corresponding key on the piano is touched, there should be a smooth wave of sound if that piano key is in tune. It takes a keen ear to hear this. If the piano note is off, you can hear a wavy pulsating sound. The more the note is off, the faster these waves pulsated. When pulsation subsides, the note is either so far off tune or it is in harmony with the tuning fork. This same principle can be applied to markets when time and price come together. A harmonious rhythm is produced at specific times in market history. When a market is topping, rapid vibrations are all over the airwaves and the good news is out for the public to hear. In the case of a bottom, the news is bad, but it is a slower collaboration of harmonious vibrations. These vibrations are not just
in
the
news,
but
in
the
cosmos
and
all
through
out
the
universe. These vibrations are the key to market harmony which is a coming together of former cycles at one time frame to form a "Vibration in Time." Nobody
knows
Calculator,
for but
certain if
you
exactly study
how
this
Gann
used
material
and
this
Master
apply
the
techniques presented I think you'll agree that this is how Gann probably
used
the
tool,
at
least
in
part,
to
prove
the
“4th
dimension in working out Time & Price movements”.
101
Illustration 53A Finding the 1x1 scale on your chart If we have a low of 257 and do the square root, we get 16.03 or 16 days. Go 16 days out to the right on your chart and mark the point in time. Look on the square of 9 and find 257. Once we have found 257, go 180 degrees around the square and you get 289. Subtract 257 from 289 = 32 which is the price we add on to our low the 16th day from the 257 low. So on the 16 day after the 257 low our 1x1 slope will cross the 289 price.
102
To do the calculations without the use of the square of 9 is a simple task. Using the example; Do the square root of 257 and add one (if coming off a low), then re-square the result. The square root of 257 is 16.03 and 1 added = 17.03 (the days out in time), re-squared = 289 - 257 = 32. This number will be added on to the low.
Illustration
53B
below
shows
the
number
257
on
the
45
degree
angle.
Illustration 53B
103
Assuming this 257 low was made on February 4th, we have the first line of support resistance in time at April 5-6. Also the darkened box is the number 336. This is the next cycle higher in price on the 33 degree angle out from the 257 low.
In
Illustration
54
we
will
look
at
why
the
price
and
time
relationship with angles should be examined beyond the obvious.
Illustration 54
As you pursue the relationship of price and time, look at market price and its relationship to the angles. If price is approaching one
of
the
significant
angles,
expect
trend
to
change.
This
104
statement can be taken two ways. Look at the previous illustration and you will see where the price of 876 comes in on the Square of 9. There are two things to look at.
Number 1: The first and most obvious is the number 876 is on the Nov 19th time frame. And it is the 124 degree angle. The first 1/3 out in time is January 17th which is on the 300 degree angle with a price of 893. These are the most obvious places to look for trend change.
Number 2: In Chart 55 we go beyond the obvious. Using the EUR-GBP currency pair as an example, we have a top of .8769. Taking the first
3
numbers
876,
we
find
that
this
number
comes
in
at
approximately the 124 degree angle on the Square of 9. By putting Market Analyst's "Dynamic Square of 9" tool on the chart, we find that the first move down off the .8769 high found support at the 124 degree angle (thick horizontal line). This is accomplished by using the .8769 high
as the reference or zero "0" point then
projecting down. The thick horizontal line is 124 degrees down off the
high.
You
have
to
continuously
search
for
these
kinds
of
time/price relationships. Once price is approaching a target area, the indicators will give first hint that trend may change.
105
Chart 55 Price tested this angle two times and moved much higher before finally penetrating it to the downside. If I did a follow up on the chart by going out further in time, we would see that this 124 degree angle offered resistance once it was penetrated.
Chart 56 shows the harmonics of numbers on a Silver chart relating to the Square of 9. Silver's most recent low was 14.10. Using the first three numbers of that low we get 141. Chart 56 reveals an interesting relationship to that 14.10 low and the following top about a month later.
106
Chart56
As you can see, the 14.10 low is pointed poin ted out by the t he arrow. A month later price stalled and reversed at around the 141 degree angle with a price of $18.25 per oz. Now, price is not always going exactly to a degree of an angle and then stop and turn on a dime. There's about
a little thing
this
indicator,
through it
is
out
in
called his
Momentum. Gann constantly
writings.
extremely
Also
overbought
if
you
territory
look when
talked at
the
price
approached the 141 degree angle. I have provided the Square of 9 Illustration 57 so you can see this setup.
107
Illustration57
The grid has the 182 square darkened which falls on the 141 degree angle. The light gray bar is pointing to the 141 degree angle. As price moved in a clockwise direction around the square, the angles were declining. The 141 degree angle would most certainly would be a place to watch for trend change. These harmonic numbers also exists in another dimension. No, not the Twilight Zone, but the Square Root.
108
SQUARE ROOT TIMING & Square of 9 Let's move on from price and Angles to using the square root of price to find support/resistance and timing
for forecasting. This
a relatively simple matter once the basics are understood. One technique is to measure the distance between two major highs or lows in terms of bar count and do the square root of that number. Then add the degrees of the circle based on the Square of 9 to the square root then re-square the number. I showed how the next number on the pyramid can be obtained by doing the square root and adding 2. The same principle applies here. Simply get the number and do the square root. You then add the number associated with one of the degrees of the circle and resquare the total. Lets review the degrees as shown earlier in the book: Conjunct (360 degrees = add 2 from the root#) re-square, Opposition (180 degrees = add 1 from root #) re-square, Trine (120 degrees = add .66) (240 degrees = add 1.33) re-square, Square (90 degrees = add .5) (270 degrees = add 1.5) re-square, Sextile (60 degrees = add .33) (300 degrees = add 1.66) resquare.
Once
this
is
calculated,
add
the
result
to
the
first
date
(earliest date) of your measuring points. The next Chart 58 shows two
numbers
Chart.
One
below number
the is
lows the
that
Trading
I
have
Day
chosen
Count
on
TDC,
the
the
Soybean
other
is
Calendar Day Count CDC. The square root number for the 124 TDC is 11.13. Lets say I want the Conjunct of 360 degrees. I would then add 2 to 11.13 and get 13.13. Re-square (multiply it times itself) 13.13 and get 172. Now I've added 172 to the first date. Once this is finished, I have plotted the date by using an arrow on the
109
chart. This is labeled TDC. Next I'll do the square root of the CDC of 178 days. Sq. Root of 178 is 13.34 add 2 = 15.34, re-square = 235 Calendar days out from the first low. I have plotted this on the chart so you could see the results. This is labeled CDC. It is interesting to note that both cycles came out on the high of a most recent move.
Chart 58 Chart 58 shows the dates of the turning points for the future market based on the two lows referenced. Take note how the first date labeled CDC is a High. The next date labeled TDC is also a high. Normally low to low will equal a high.
If you are going
from High to High, then expect a low at the time of Conjunct. If measuring from Low to Low, expect a high at the Conjunct. When
110
measuring from a High to a Low, expect the Conjunct
to be a high.
This chart was randomly chosen and could have been most any Stock, Commodity
or
Forex
chart
and a nd
produced
the
same
result. One
important factor when doing this type of analysis is there must be discernable cycles available and not a long trending market which does not yield the desired results. A
rule
of
beginning
thumb; If point,
the
you
use
"soft
the date
angles"
of
will
extreme
typically
low
as your
come
out
as
lows. The soft angles are the 30, 60, 120, 240 300 degree angles. The
"hard
angles"
will
typically
come
out
as
highs.
The
hard
angles are 45, 90, 135, 180, 225, 270, 315, 360 degree angles of the square of nine. Reverse these rules if starting from a high. The exception is the 270 degree angle. If starting from a low, the 270 degree angle will typically come out as a low. For future reference the hard angles are harmonics of 45 degrees and the soft angles are harmonics of 60 degrees. This type of forecasting works very well on weekly charts. When a time has been targeted for trend change, move on to the daily charts and apply the harmonic square which will narrow down the time frame to within a few days.
111
Square of 9 Intervals for Time In Chart 59, I am utilizing the Square of 9 "Intervals" tool to find future converging cycles in Time. In this exercise, I am using the 180 degree time frames (Extended out) from two starting points. I'll need two charts to show how the converging cycles come together twice causing change in trend. Chart 55A shows the two starting points I measured from. The two vertical lines, marked with an X resulted in a change of trend about six months later.
Chart 59
112
Chart 60 shows the same daily chart with two cycles converging at a much later date (1.5 years later) using the same starting points. These cycles were much closer together and a significant change in trend occurred which was followed by a very profitable increase in price.
Chart 60
113
Lets do one more. This time I'll use three different starting points for the cycles. A Low, High and a low again. Three cycles converged within one day of the low about six months later. The X marked the spot where they converged. Market bottomed and price moved up $13 a barrel.
Chart 61 Another interesting point is the 1,440 or (144) mark of time (arrow). Market topped exactly at that time frame. This kind of analysis can be performed on a regular basis with this software. The Square of Nine Intervals tool can be used going back as many years as the chart technician's data base allows. These convergences are very powerful and quite reliable.
114
The Square of 9 TABLE: My Thanks go out to Daniel Ferrera and Brad Stewart at Sacred Science for permission to reprint this portion which was taken from Daniel's book on the Square of Nine (www.SacredScience.com ). Price has a relationship to time on the Square of 9. Once a high or low has been established, the information for a potential future turning point is now available. Earlier, we were discussing the square root relationship of numbers on the Square of 9 by adding 2 to the square root of any number. By doing this, we arrived at the next higher number on the same angle. If we subtract 2, we got the next lower number on the same angle 360 degrees out on the square. Putting these numbers in collaboration with the Square of 9 Table, we come up with some very interesting results. All we have to do is square root the number of the low or high we are working with. In this case, lets look for the 90 degree angle as calculated by adding or subtracting 0.50 to the square root of the price and then re-squaring the result. Next are the instructions for the Square of 9 Table and after that is an example.
115
Table is used in converting a The Square of 9 Table is number to the degree of angle it relates to on the Sq. of 9. Notice along the top are the degrees of a circle from 0 to 315. A Cycle is one revolution around the square of 9 with all of the eight 45 degree portions being covered. The number of the cycle is how many times out from center it takes for the square of 9 to get to that number. Each one of the numbers on the table falls on a 45 degree angle in the square of 9. For example the number 34 is in the 3rd cycle 2nd 45 degree past the 0 degree mark (or the vernal equinox). It is on the 90 degree angle. Now to apply any number to the chart, simply find the closest number on the table to the number you are working with. Lets say you have a major bottom price of 679. The closest number is 677 and 679 is 2 above that number. Simply divide 2 by the Degree Ratio of .288889 (found in the left column). 2 divided by .288889 = 6.92. The 677 is in the 135 degree column. Now add 6.92 to the 135 degrees & you get 141.92 or 142 degrees. So 677 is on the 142 degree angle. To get the next number out on the same angle of the square of nine, just square root 677 = 26.01, then add 2 = 28.01, then re-square 28.01^ = 785.07. Subtract 2 if you are looking for the next number down on the same 142 degree angle.
Square of 9 Table
Angle Cycle #1 2 3 4 5 6 7 8 9 10
DegRatio 0.02222 0.04444 0.06667 0.88889 0.11111 0.13333 0.15556 0.17778 0.2 0.22222
0
45
90
135
180
225
270
315
2 11 28 53 86 127 176 233 298 371
3 13 31 57 91 133 183 241 307 381
4 15 34 61 96 139 190 249 316 316 391
5 17 37 65 101 145 197 257 325 401
6 19 40 69 106 151 204 265 334 411
7 21 43 73 111 157 211 273 343 421
8 23 46 77 116 163 218 281 352 431
9 25 49 81 121 169 225 289 361 441
116
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
0.24444 0.26667 0.28889 0.31111 0.33333 0.35556 0.37778 0.4 0.42222 0.44444 0.46667 0.48889 0.51111 0.53333 0.55556
452 541 638 743 856 977 1106 1243 1388 1541 1702 1871 2048 2233 2426
463 553 651 757 871 993 1123 1261 1407 1561 1723 1893 2071 2257 2451
474 565 664 771 886 1009 1140 1279 1426 1581 1744 1915 2094 2281 2476
485 577 677 785 901 1025 1157 1297 1445 1601 1765 1937 2117 2305 2501
496 589 690 799 916 1041 1041 1174 1315 1464 1621 1786 1959 2140 2329 2526
507 601 703 813 931 1057 1191 1333 1483 1641 1807 1981 2163 2353 2551
518 613 716 827 946 1073 1208 1351 1502 1661 1828 2003 2186 2377 2576
529 625 729 841 961 1089 1089 1225 1369 1521 1681 1849 2025 2209 2401 2601
26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
0.57778 0.6 0.62222 0.64444 0.66667 0.68889 0.71111 0.73333 0.75556 0.77778 0.8 0.86667 0.84444 0.86667 0.88889 0.91111 0.93333 0.95556 0.97778 1 1.02222 1.04444 1.06667 1.08889 1.11111 DegRatio 1.13333 1.15556 1.17778 1.2 1.22222 1.24444
2627 2836 3053 3278 3511 3752 4001 4258 4523 4796 5077 5366 5663 5968 6281 6602 6931 7268 7613 7966 8327 8696 9073 9458 9851
2653 2863 3081 3307 3541 3783 4033 4291 4557 4831 5113 5403 5701 6007 6321 6643 6973 7311 7657 8011 8373 8743 9121 9507 9901
2679 2890 3109 3336 3571 3814 4065 4324 4591 4866 5149 5440 5739 6046 6361 6684 7015 7354 7701 8056 8419 8790 9169 9556 9951
2705 2917 3137 3365 3601 3845 4097 3557 4625 4901 5185 5477 5777 6085 6401 6725 7057 7397 7745 8101 8465 8837 9217 9605 10001
2731 2944 3165 3394 3631 3876 4129 4390 4659 4936 5221 5514 5815 6124 6441 6766 7099 7440 7789 8146 8511 8884 9265 9654 10051
2757 2971 3193 3423 3661 3907 4161 4423 4693 4971 5257 5551 5853 6163 6481 6807 7141 7483 7833 8191 8557 8931 9313 9703 10101
2783 2998 3221 3452 3691 3938 4193 4456 4727 5006 5293 5588 5891 6202 6521 6848 7183 7526 7877 8236 8603 8978 9361 9752 10151
2809 3025 3249 3481 3721 3969 4225 4489 4761 5041 5329 5625 5929 6241 6561 6889 7225 7569 7921 8281 8649 9025 9409 9801 10201
0
45
90
135
180
225
270
315
10252 10661 11078 11503 11936 12377
10303 10713 11131 11557 11991 12433
10354 10765 11184 11611 12046 12489
10405 10817 11237 11665 12101 12545
10456 10869 11290 11719 12156 12601
10507 10921 11343 11773 12211 12657
10558 10973 11396 11827 12266 12713
10609 11025 11449 11881 12321 12769
Angle Cycle 51 52 53 54 55 56
117
57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100
1.26667 1.28889 1.31111 1.33333 1.35556 1.37778 1.4 1.42222 1.44444 1.46667 1.48889 1.51111 1.53333 1.55556 1.57778 1.6 1.62222 1.64444 1.66667 1.68889 1.71111 1.73333 1.75556 1.77778 1.8 1.82222 1.84444 1.86667 1.88889 1.91111 1.93333 1.95556 1.97778 2 2.02222 2.04444 2.06667 2.08889 2.11111 2.13333 2.15556 2.17778 2.2 2.22222
12826 13283 13748 14221 14702 15191 15688 16193 16706 17227 17756 18293 18838 19391 19952 20521 21098 21683 22276 22877 23486 24103 24728 25361 26002 26651 27308 27973 28646 29327 30016 30713 31418 32131 32852 33581 34318 35063 35816 36577 37346 38123 38908 39701
12883 13341 13807 14281 14763 15253 15751 16257 16771 17293 17823 18361 18907 19461 20023 20593 21171 21757 22351 22953 23563 24181 24807 25441 26083 26733 27391 28057 28731 29413 30103 30801 31507 32221 32943 33673 34411 35157 35911 36673 37443 38221 39007 39801
12940 13399 13866 14341 14824 15315 15814 16321 16836 17359 17890 18429 18976 19531 20094 20665 21244 21831 22426 23029 23640 24259 24886 25521 26164 26815 27474 28141 28816 29499 30190 30889 31596 32311 33034 33765 34504 35251 36006 36796 37540 38319 39106 39901
12997 13457 13925 14401 14885 15377 15877 16385 16901 17425 17957 18497 19045 19601 20165 20737 21317 21905 22501 23105 23717 24337 24965 25601 26245 26897 27557 28225 28901 29585 30277 30977 31685 32401 33125 33857 34597 35345 36101 36865 37637 38417 39205 40001
13054 13515 13984 14461 14946 15439 15940 16449 16966 17491 18024 18565 19114 19671 20236 20809 21390 21979 22576 23181 23794 24415 25044 25681 26326 26979 27640 28309 28986 29671 30364 31065 31774 32491 33216 33949 34690 35439 36196 36961 37734 38515 39304 40101
13111 13573 14043 14521 15007 15501 16003 16513 17031 17557 18091 18633 19183 19741 20307 20881 21463 22053 22651 23257 23871 24493 25123 25761 26407 27061 27723 28393 29071 29757 30451 31153 31863 32581 33307 34041 34783 35533 36291 37057 37831 38613 39403 40201
13168 13631 14102 14581 15068 15563 16066 16577 17096 17623 18158 18701 19252 19811 20378 20953 21536 22127 22726 23333 23948 24571 25202 25841 26488 27143 27806 28477 29156 29843 30538 31241 31952 32671 33398 34133 34876 35627 36386 37153 37928 38711 39502 40301
13225 13689 14161 14641 15129 15625 16129 16641 17161 17689 18225 18769 19321 19881 20449 21025 21609 22201 22801 23409 24025 24649 25281 25921 26569 27225 27889 28561 29241 29929 30625 31329 32041 32761 33489 34225 34969 35721 36481 37249 38025 38809 39601 40401
118
Let's do an example; A high of 558 is on the 63.75 degree angle according to the Square of 9 Table. We can get this by breaking the number down. The 63.75 degree angle is also on the date of May 25th. After doing the calculations of square roots, and adding 2, we get 656 and the next number out is 763. What we are looking for are three possible prices on the future date of May 25th. 558, 656, and 763. If one of these numbers comes into play on May 25th we would be looking for a change in trend based on the 90 degree relationship of price equaling time. Trend could change with any of the numbers relating to the angle relationship of 63.75. The reason I used the 90 degree angle as our example is Gann talked about the importance of this angle. The next most important angle is 180 degrees, the next angle of importance is 270 degrees then the 360 (full circle). Finally the soft angles which are divisible by 30. Use these angles to correlate the time objective.
Square of 9 Table for Day Trading
(very important for day traders)
I have found another technique to be very effective. Use price as a geometric time progression. Take the price of the major highs and lows and convert them by using the square of 9 table. We must look at another mathematical relationship first. The calendar of numbers on the square of 9 have a very good relationship of 1 to 1 on the 24 hour clock. The Earth goes around the Sun in 360 degrees completing the calendar year and each number inside the square represents a day. The 24 hour clock does not have this same relationship. So when day trading, we must get the degrees per minute. Illustrations 62 & 62A are that of the Square of 9 with the 24 hour clock around the outside perimeter.
119
Illustration 62
120
Illustration 62A
We first need to transform minutes into degrees. If 24 hours is 360 degrees, then to get the minutes, we multiply 24 (hours) x 60 (minutes) = 1440. We then divide 1440 by 360 degrees and we get 4. Therefore, 1 degree equals 4 minutes of time and 1 hour would be 15 degrees and 2 hours is 30 degrees. The zodiac signs are 30 degrees each. If you do not have a Square of 9, convert the highs and lows into angles by using the square of 9 table. Once the angle has been established, use the 4 minutes per degree as your time calculator. Start from that angle (converted to time) and do your time counts of 90 degrees, 180 degrees etc; from there.
121
When time comes around around to the point point of price, expect in trend . Example; If
change
we have a price that equals 135 degrees on
the Square of 9 table and we want to find the
first 90 degree
resistance of time, we simply add 90 to the 135 degrees and we get 225 degrees. Expect some change of trend on the 225 degree angle. If we you have a price that is on the 315 degree angle, then we have to convert that back so it fits on the 360 degree circle. So 90 x 4 = 360 minutes which equals 6 hours. And 180 degrees = 12 hours. 270 degrees is 18 hours. Therefore 90 degrees plus 315 degrees = 405 degrees. If we divide 405 by 4, we get 101.25 or the 101 degree angle. Look for some change in trend at 101 degrees. Also look at the time (24 hour) clock and see where 315 degrees is in relationship to the numbers on the square and watch for change in trend at that point in price. Furthermore, if each degree is 4 minutes and there are 1440 minutes in a 24 hour time frame, then 315 x 4 =1260 minutes divided by 60 = 21 hours. And 6 AM is 0 degrees starting point, 21 hours will be 3 AM
the next day.
It is very important that you have more than one confirmation of this technique. Use several previous highs and lows to find future turning points in time and look for those that merge. So if one previous high is 90 degrees and another previous high or low is 180 degrees, there is a convergence. Confirmations like this will help your account equity. Techniques
like these are some of Gann's first rate mathematics.
Gann took this to the next level by using the WHEEL OF 24 and incorporating Astrology. This is a Science and study all in itself.
What I have shown you here are the fundamentals of his
work.
122
CHAPTER 10 Market Science Scienc e & Behavior When
I
first
started
trading
in
1980,
I
had
a
hard
time
understanding some of the mechanics on how the Stock and Commodity markets move up and down and who buys all the sellers contracts and who sells all the buyers contracts until I became a licensed Commodity
Associate
Broker
in
1989.
After
extensive
study
and
talking to Floor Traders, I came to an understanding of how it all works. I will try to sum up what I learned over the years in a few short pages. These basics can be applied to all markets because all markets follow
the
same
laws
of
buy/sell
pressure.
When
a
market
is
approaching a bottom, we have several forces pushing it lower. First, we have the overall lack of buying. It is most notable when the big firms are not active buyers. ("It takes a tremendous amount of buying to push a market higher; but it takes a mere lack of it for it to go lower"). Along with this, we have the selling pressure by large firms which is known as Hedge Pressure. We then have selling by smaller hedgers of of the product being traded. could
be
Treasury
banks Bonds,
selling grain
mortgage
elevators
rates,
selling
governments Soybeans
This
selling
etc; Finally
there are those weak long positions who just can not stay with their position any more and they have to “Bail Out”. This causes high volume and many times you see a market bottom with a large volume day and dramatic price drops fueled by the worst news one could
hear
(Bottoms
have
a
tendency
to
be
less
volatile
than
tops). If weak traders are in a long position, panic may set in at this time and mass liquidation could take place. Finally these
123
weak longs throw in the towel. Most always we will see the worst news at market bottoms and very good news at market Tops. At this time, their
short
the shorts cover their
positions. These
are ar e
the
positions profit
by buying
takers.
Now
back the th e
speculators, "Bottom Pickers" (the Fred's), come in and start to buy. Then the hedgers have found themselves short of product so they must buy to maintain an inventory level; When it is all said and done and the dust has settled, the market commentators call it a "Short Covering Rally". In some cases this is true. However, there is a way to tell the short covering rally from a true market bottom. Watch the volume on these rally's off major lows and do a count of the number of days up to see if the most recent move up has lasted longer in time than any of the short covering rally’s from the most recent down trend. Look to see if the volume of the most recent move up is greater than that of the last down move. If it is, then there may be reason to believe the market is reaching bottom. Before I begin to look for a place to enter the market on the long side, I want to see if there is a cluster of cycles that fall together on one or two consecutive dates. If so, I will use one or more of my systems to put me long the market. Some people use indicators to judge if the market’s selling has been exhausted. We covered indicators. Unlike most market bottoms, a market top will experience extreme volatility, wide price ranges and high volume. Indicators will often stay in an over bought state for an extended period of time, giving the trader false signals time and again. When a market is approaching a bottom, the indicator will be at the bottom after the
market
has
already
bottomed
and
on
the
way
up
for
a
124
retracement. Gann teaches that the Public enters the market at these tops and sells at these bottoms. Gann
said
market
price
will
be
working
between
the
45
degree
angles of the 360 degree chart (square of 9) in price and time. If you take a circle and divide it into 8 different parts, we have 8 45 degree angles. These lines drawn from the center of the circle outward get further apart as price gets higher. The further out in price, the more volatility there will be. Price fluctuates freely between
these
angles
because
they
are
widening
as
price
goes
higher.
The News If
a
trader
gets
caught
up
in
the
news,
it
can
be
a
major
financial disaster. One good example is the 1980 Gold and Silver extreme price rise. People blamed the Hunts for causing it, but it took the participation of the whole world for a market like this to happen. The hunts were not buying Gold, just silver. I remember very clearly when Gold was $800 and on its way to a high of around $850, people were talking $1000 Gold and $100 Silver. Well Silver went to $52.00 and Gold Reached $850. The greedy hung on for the ultimate $1000 mark and went down with the ship. The smart ones were selling all the way up. I was very fortunate to have been on the right side of the Silver market both on the way up and on the way
down.
At
the
time
I
was
in
the
Silver
and
Gold
business
hedging my product. I have come to the conclusion that there are very powerful and influential people who have the news media at their control and they use this to their advantage. I am therefore very cautious when major news comes out (good or bad) especially when we have
125
seen a significant price move, prior to the news, in the direction of the news. Gold
had
a
tremendous
move
up
in
price
from
October
1979
to
January 1980. Near the top the producers started spoon feeding the public of the (so called) shortages of Gold, and how the mines were drying up and their inability to supply the demand was ever increasing. At that time, the producers were hedging the product they hadn't even mined yet. This was done on "Forward Contracts" (the Futures Market). The result was the public bought everything the mining company's could dish out. Gann strongly emphasizes to stay far from the news and the ticker. You won't be able to see the forest through the trees. Let me conclude by saying that in my earlier days of trading and as an Associate Broker for a Grain Firm, I got suckered into these reports and found myself usually on the wrong side of the market after they come out. If there is a major report due out, I suggest stay with your technical analysis and work even harder during the time preceding the report.
126
CHAPTER 11 Gann's Rules for trading Stocks, Commodities, Forex 1.) BUY AT NEW HIGH PRICES OR OLD TOP LEVELS
When using weekly charts the number of bars can be less than that of the daily bars. This example shows 22 weeks. If we use 22 days on the daily chart, the break out may not be as significant and a false signal may occur.
127
Here is another example of buying above old tops. This is a Weekly "LINE" Chart of the S&P 500 that shows the old top of 2007 broken a little over 5 years later in April 2013. An interesting point here is how price came down to the level of the price breakout about 2 months after April 2013 and found support.
128
2.) SELL WHEN PRICES DECLINE BELOW OLD TOP LEVELS The significance of this chart is how the price of Corn had fallen so much and here is price looking like it has found some support when Gann says we have a SELL SIGNAL.
129
3.) SELL AT NEW LOW PRICE LEVELS As a general rule it is safer to wait until prices advance at least a few points above high levels and still more important to wait until they close above these levels before buying and at the same time it is safer to wait until prices decline a few points below old low levels and still safer to wait until they close below these old levels before making a trade. This US Dollar weekly chart shows that it sometimes takes a few years for a trade to culminate. But when it does, you will be ready with these rules.
130
4.) CLOSING PRICES
Wait to buy or sell when prices close above old highs or below old lows on the daily or weekly charts. This rule should be exercised when markets are very active and moving fast. This is most effective when using the daily chart. A general rule is the longer the time period in days, weeks, months or years when prices exceed old highs or break old lows, the greater the importance of the change in trend and the move up or down. Prices will most often react back to the old tops or bottoms, which is a safe place to buy or sell. Always use stop loss orders.
131
5.)The 50% RULE
A.) The strongest buying point is when prices decline to 50% of the highest selling level. You can buy with a stop loss order a few points below the lowest low of the most recent move down. This setup in Microsoft presented an excellent trade opportunity. B.)
Next
strongest
buying
point
is
50%
of
lowest
low
and
the
highest high. C.) The strongest selling point when prices advance after being below the 50% point and reach it for the first time. Protect this trade with a stop loss order a few points above the 50% level.
132
Note: All these trades would be enhanced with the use of a timing technique and a market entry system.
133
The Fourth Time Rule
Gann said to sell if market price moves to a resistance area a fourth time. Sell/Buy on a close below/above the resistance area. Much lower/higher prices should follow. The above chart shows this on the left side. When price approached a 1x1 angle for the third time, if found support. On the fourth, it fell through.
6. STOP LOSS ORDERS Always use stop loss orders. Protect your capital at all times. Place these orders when you make a trade. You should know in advance what risk you are going to take. A general rule is do not risk more than 10% of your capital.
134
Chapter 12 MONEY MANAGEMENT MANAGEMEN T (FOREX - PRECIOUS METALS) This chapter addresses what I believe to be the most important aspect of Successful trading. Money Management is understood by some people and practiced by few. Let me put into words exactly what I mean by Money Management or Risk Management as it pertains to trading. Money Management is the incorporation of established rules
and
guidelines
which
help
prevent
the
excessive
loss
of
capital in a trading account. In this book I have established a
very good set of guidelines which I believe will help you with your money management in the Forex, and precious metals markets. Other markets like the S&P, Bonds, Grains etc; can benefit from this by just using a little common sense and a calculator.
The initial deposit to open most Forex accounts can be as little as
$500.
Some
firms
allow
$250.
I
suggest
a
bare
minimum
of
$2500. It is better to have a higher starting balance ($5000 or more) so you can have some breathing breathi ng room when putting on a trade. If you are planning on making this your full time profession, I suggest
Currency These
at least $50,000.00. The reason for this is as follows:
Pairs
Mini
starting
are
Lots
points
traded in
mini
or
1/10th
a
for
money
of
lots full
management.
of $10,000 contract Knowing
face value.
($100,000) contract
are
size,
margin requirements and account equity is a must for every trader. All Forex Pairs will have these contract sizes. Margin (or earnest money) for a 1 lot or $100,000 varies depending on the Forex Firm.
135
The
firm
I
have
my
account
with
requires
$3000.00
for
a
full
contract. The following suggestions are intended to be a guideline of Risk Management for the Forex Trader. I hold no responsibility for loss due to market fluctuation or volatility of any kind or other unexpected circumstances.
Money Management Rules
1) FOR EVERY 1/10th LOT YOU TRADE, there should be a minimum of $500 equity in the account. If you are putting on 5/10ths of a full contract or 5 mini lots, you must have at least $2,500 equity in the account. If a full 1 lot (10 mini's) or $100,000 face
value
equity.
is
traded,
Another
example
you is
should
have
if
account
an
no
less has
a
than
$5,000
balance
of
$25,000 5 full contracts can be traded and still be within the guidelines of Good Money Management. If you put on a position of 5 minis and only have $1500 in your account and you use a 30 pip stop, that's $150 risk which is 10% of your equity. If you loose 3 trades in a row, you have just blown almost 1/3rd of your account equity. This is not a smart thing to do. By staying within the parameters put in place here, rule number 5 will be your best friend.
WHEN TRADING GOLD on the international markets, the rules apply even more. With the volatility the metals have experienced these past few years, money management will be a life preserver in deep water. For every 10 ounces of gold you trade, make sure there is a minimum of $500 in your account. Use the 30 point or 1/10th equity stop rule...or in this case, $3 to $5 dollars.
136
2) STOPS MUST BE USED at all times. The place where you are going
to put a stop should be considered before executing a trade. Before
you
enter
a
trade,
evaluate
your
profit
to
loss
potential. The program I use has the capability to put stops in for me when I am absent from my computer and get filled on an open order. It is recommended to use no more than a 30 pip stop loss but this can vary at times.
Larry Williams writes in his
books that he always figures he will lose when he executes a trade in the markets. Think about that for a minute! If we all plan on losing when we trade, then we are going to make sur e our stop is not going to be 15 miles away risking a wad of cash. If the risk is too great, then skip the trade. There is always another time or day to trade.
3) NEVER RISK MORE than 1/10th of your equity on any one trade. Always give yourself the advantage before entering. If you enter a market with a stop that is 100 pips away, you are already in a loosing position. You should be in a position where your stop is no more than 30 pips on the average. This will give you a risk of about 1/18th of your account equity on any one trade.
4) MARKET ENTRY IS VITAL This is one of the hardest things to do. It requires discipline, premeditated planning and an awareness of market position. In this thi s book, I will give you the tools how h ow to tell
Market strength and weakness. Wait for the trade to line
up and be there to pull the trigger when all signs show a green light. Examples of this will be shown in the following chapters.
5) THE COMFORT ZONE This is probably the least talked about of all the things associated with trading. I have read many books on trading and few even mention this very important subject. Do not
137
underestimate its value to you as a trader. When you enter a trade and over extend your account equity, your comfort zone narrows and you are more prone to exit a trade with a loss or a minimal profit. Do not feel that you are required to use up your Maximum Equity on Margin each time a trade is put on. Trade conservatively
and build confidence in your trading technique.
Stay away from the greed factor. The temptation is always there to make that "KILLER PROFIT" to make up for the big losses you have sustained in the past. Submitting to this temptation is the "KISS OF DEATH"! Some say not to risk more than 10% of your account equity on any one trade. I'm not willing to risk that much on any one trade. I feel comfortable to risk no more than 5%. Recently I took a profit on a trade. I was only willing to risk 1/3 of the profit on my next trade. I like to keep my balance moving up in my account and have the checks coming in, rather than me sending them out.
6) PAY YOURSELF when the profits start rolling in. Some investment counselors call the money in your trading account risk capital. This
is
money
that
you
will
not
miss.
To
heck
with
that
thinking. I will miss it if it leaves me and goes into another account. I consider the money in my trading account part of my family
and
I
want
my
family
to
grow
and
prosper.
I am
not
willing to throw them out the window. Try to set some time frame or money goal to where you can draw a payment or check from your account. It is nice to have these checks coming your way instead of you sending them out. The bottom line is making money! This way you can use it to help others or attend to your own nee ds or turn it over to your wife, girlfriend or boyfriend so they can put it in the retailers account and help the economy along. Greatness starts and ends with money management.
138
Chapter 13 The Fibonacci Spiral & the Golden Ratio This is another subject that could be a book in it self. And because of that fact, I will briefly cover the basic principle's of this all important form and it's applications on how the trader can apply the form to charts. Meet the Fibonacci Spiral or as some call it the Logarithmic Spiral.
Call it what you want, but know this; it is a perfect shape which is found in most all of nature. You will see this pattern when looking at a Sunflower or when draining water in a tub. It is the shape of the Spiral Galaxy. It can be seen in numerous plants and seen in sea shells. It's form is on the Human Body and is found in ancient
Greek
Architecture.
And
the
list
goes
on.
Because
it
follows the natural law of expansion, it can be applied to any chart for analysis. The
Fibonacci
sequence
of
numbers
when
applied
to
the
spiral
139
shows a very interesting pattern. The numbers are in cubes or in Gann terms (Squares), 1+1=2, 2+1=3, 3+2=5, 5+3=8, and so forth and so on. This configuration can be carried out to infinity. Each progressively higher square is 1.618 larger than the previous one. By having the knowledge of previous squares, we can project out into the future the expansion of the next square. This is done with
simple
mathematics.
Just
multiply
the
previous
square
by
1.618 and you have the next progression. The key is to know where to place the beginning of the next square so you can have an idea of the next time and price target zone. Now let's apply it to charts.
Let's do an exercise in time not price. Silver Chart 68 shows the spiral measuring the time of a swing. The beginning of our swing is a low and the center of the spiral is placed on the exact low. The
outside
ring
will
be
the
measuring
point
of
the
square/rectangle as the rings of the spiral graduate out in time. Once
the
spiral,
time we
of
can
square/rectangle
a
swing
then and
move begin
is
determined
the a
new
spiral set
by
measurement
of
the
to
the
of
the
of
right
progressively
larger
squares or time frames. When the spiral is moved to the right of the beginning square, future time can be measured. This time is
140
used to determine trend change time zones. The second of these charts illustrates this.
Chart 68
As you can see in Chart 69, I have moved the same spiral to the right and placed the center on the high of the move. The next observation shows the end of the spiral to the right showing a high and a trend change time zone. In Chart 70, I have moved the spiral to the right once again and by placing the center on the high, we can see another of these trend change time zones coming in at the end of the spiral. This time it's a low rather than a high.
141
Chart 69
The third Chart 70 of this series shows the spiral moved to the right again and having the center placed on the high we can see that a low came in right at the end of the spiral time frame.
142
Chart 70
Next, Chart 71 shows the use of squares and their progression in size using the 1.618 ratio. The squares are placed in strategic locations to show the significant Time/Price points at the end of each.
At the beginning
we need reference points
to begin the
square
progressions. This is derived from Gann's writings pointing out that the first wave up off a significant low is the measuring point for the remainder of the move.
143
Chart 71 As you can see, I used this first cycle from low to low as the measuring point for my first fir st square. The next 1.618 square shows a significant low at the end of the cycle. The third square shows a high at the top of the square. The fourth one shows a significant low at the bottom of the square. This price action is from a daily chart. However any time frame can be used with this technique.
An interesting observation on this chart is how the larger square showed not only timing, but price. It's expansion using the 1.618 ration coming off the previous square caught the bottom of the move down. Because the low of the third square was taken out, I moved the next square to the downside. This is due mostly in part to volatility and momentum. Price failed to continue up. Remember I wrote in an earlier chapter about Gann's example of the 50% level
and
dropping
a
ball
through
the
center
of
the
earth?
144
Remember the ball will travel through the middle before it settles at the center because of momentum? How and when this momentum is measured can be a study in itself.
As
you
can
traditional
see,
this
Fibonacci
technique
expansion
is
lines
quite and
different price
from
structure
the most
software trading platforms use. As a matter of fact, I believe there is not a software program on the market today that has the capability to do this type of analysis. I sure would like to see someone take the initiative to program these techniques. I hope this little bit of information has given you some insight to the advanced techniques of Fibonacci's Math and Gann's Squares.
145
Entering a trade Larry Williams Way In Larry Williams' (www.ireallytrade.com) book "DAY TRADE FUTURES ONLINE" he gives a formula that he uses when markets are trending either down or up. It is called "Greatest Swing Value". The formula is found in his book on pages 133 thru 135. Here is Larry's Formula for market entry on a down trending market. )= )= (GSV
"The first part of the set up is to have today's close lower than the close 5 days ago, suggesting Yin may turn into Yang. I also want to limit my buying to only one of 3 days of the week; they are Tuesday, Wednesday, and Friday. Once that part of the setup exists, I will take the difference from open to the high for each of the past 4 days and divide that by 4 to get the average "buy swing." I want real proof the market is tracking in fresh ground, new territory, so I will be a buyer above the opening at an amount equal to 180 percent of the 4 day swing value average. The sell is a mirror image in that I take the distance from the open to the low for each of the last 4 days and divide by 4 to get the average. This is also multiplied by 180 percent and subtracted from the opening if the sell setup exists.
I have put the GSV formula on a spread sheet and it is a tool I use multiple times in my day trading. You can go to my website and download it for free. www.gannline.com Here
is
another
of
Larry's
formulas
based
on
"VOLITILITY
BREAKOUT". It works well! Nothing is 100%, but with good timing and this formula, you are going to raise your percent accuracy considerably higher. With the proper money management, you will have as Larry would say, the "KEYS TO THE KINGDOM".
Momentum
is
one
of
the
concepts
that
can
bring
us
short-term
profits. I say short-term because most of the profits are taken within the first three days. For many decades, money managers of stocks and funds have been issuing their annual forecasts. After careful study by an observant market analyst like Jake Bernstein, he found that most of these forecasts were not even close to being
146
accurate. According to Larry, the truth of the markets is this; It is easier to predict price action over the next three days than it is to forecast an entire year of market action. This is why Larry Williams sticks to his three day trading. t rading. He is usually in and out of a trade within three days.
So here it is. Measure the amount of price movement from
the high 3 days ago to today's low. That is step 1. Step 2 is to take the swing distance from the high 1 day ago minus the low 3 days ago . Finally we will use the largest of these
values
process
of
as
our
designing
basic a
volatility
filter
or
measurement price
to
cushion
begin to
add
the to
tomorrow's opening for buying or subtract for selling.
The rules are to buy at 80 percent of the swing value above the opening
and
sell
at
120
percent
of
the
swing
value
below
the
opening. Use a stop 180 percent of the swing from the open in the opposite direction of your trade. You can use 225 percent if you feel comfortable and are
willing to risk more money. This may
allow for the "stop runners" and the big institutional traders like banks doing business for their equity.
So, there it is, Larry's system. He has proven results as shown in his book, but he also has one more scenario that he puts into the equation. This is the Trading Day of the Week (TDW). For what ever market you trade you may want wa nt to do a bit of research as to which days have a higher percent bullish and bearish pattern. I highly recommend
Larry's book "DAY TRADE FUTURES ON LINE". Especially
focus on the last chapter. Money Management.
147
TRADING WISDOM
The
following list of scriptures are taken from the Good Book. I have written
them down word for word and applied God’s wisdom to everyday trading and Life.
O
“ NE MAN GIVES FREELY, YET GAINS EVEN MORE; ANOTHER WITHOLDS WITHOLDS UNDULY, UNDULY, BUT COMES TO POVERTY.” (Charity)
HE
“
WHO
IGNORS
DISCIPLINE
COMES
TO
POVERTY
AND
SHAME,
BUT
HE
WHO
HEEDS
CORRECTION IS HONORED.” (Learn from your mistakes) “ LL LL A
HARD WORK BRINGS A PROFIT, BUT MERE TALK LEADS TO POVERTY.” (Do your
homework)
THE
“
PLANS OF THE DILIGENT LEAD TO PROFIT AS SURELY AS HASTE LEADS TO POVERTY.”
(Always have a plan of action)
THE
“
PRUDENT SEE DANGER AND TAKE REFUGE, BUT THE SIMPLE KEEP GOING AND SUFFER
FOR IT.” (Use stops)
A “ S
IRON
SHARPENS
IRON,
SO
ONE
MAN
SHARPENS
ANOTHER”
(Find a trading pal) “ MAN’S MAN’S A
PRIDE BRINGS HIM LOW, BUT A MAN OF LOWLY SPIRIT GAINS HONOR.” (Do not
boast about about your your winnings) winnings) “ HEN HEN W
PRIDE COMES, THEN COMES DISGRACE, BUT WITH HUMILITY COMES WISDOM.” (Stay
reserved when talking about your trading)
148
Author's Notes : The world of technical analysis has come a long way since the early days of speculative markets. In the early 20th century, most stock and commodity traders scoffed at the idea that any market could be predicted in terms of price and time. It is human
nature
present. mocked
When
as
a
to
be
critical
Edison’s first hoax
and
a
when
a
lack
phonograph
product
of
of
understanding
was pronounced,
ventriloquism.
The
is
it was average
individual fears that which he or she does not understand. Even in today’s high tech world and the age of the super computer, I still hear people ask with a cynical tone, how can a chart predict unforeseen events such as floods or drought? My answer to them is to quote Gann’s famous words. He said, "My answer is that the coming events cast their shadows before, and the market is nearly always prepared for these events and gives some indication of
change
of
trend
before
these
events
take
place."
That’s
a
powerful statement, but a true one. When reports or news come out that could affect a market’s price, I greet them with caution and look at the over all trend and where it is in relationship to price and time. The charts will tell what the news will be. The human element of emotions is our greatest weakness in this massive financial climate we live in today. Markets move up with a tremendous amount of buying and go down with a mere lack of it. When a market is approaching a bottom, there will always be the "bottom pickers". I once knew a guy who I call "life of contract low Fred". Fred was the guy who came across as being smarter than anyone else. He would look for those markets that were making new life of contract lows then buy in. It worked some of the time, but ultimately he lost every single penny he made and a whole lot more on top of
149
that. I never saw Fred trying to improve his trading style or educate himself regarding Stocks and Commodities. Fred was just the guy who had this vision of himself on the sandy white beaches with a cool one in his hand, while his servants waited on him as he used his cell phone to call in orders. To grow and continue learning is life itself. Einstein stated that the Universe is expanding. We are part of this growth because we are part of the Universe. Study these pages carefully and continue to go over them and apply the techniques, rules and systems. If you study the material carefully, you will have the ability to forecast price and time effectively. With this forecasting your confidence will build each day as you make market predictions. These predictions are nothing more than a high probability of repetitiveness. Fellows
like
Larry
Williams
and
Jake
Bernstein
have
built
themselves stellar careers on certain chart patterns. They watch for a reoccurrence on certain dates and certain days of the week at certain times etc. The patterns they use have been narrowed down to the high probability trades like 90% or better. Along with this
90%
probability,
they
use
strict
money
management
and
a
psychological approach to their trading. The age of the computer has provided them with a near lifetime of study in just a few short days of research.
150
Disclaimer
I make no guarantees that the studies in this book are either a complete guide or a standard by which to follow. Such a work would have to include a great deal of historical data plus volumes of charts to show most every setup possible relating to angles and their relationship to price and time. This is however an outgrowth of a need for a reference book for the trader of today’s and tomorrow’s markets to use as a study guide. Most of the methods used have been proven by the master himself, W.D. Gann. Trading is risky and can be a stressful business and the facts are that more people lose money trading than make money. Therefore you must be cautious in your decision making and take full responsibility for your actions and not look to blame anyone or any market for your losses.
www.gannline.com
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