The following excerpts are taken from our tutorials in our SHORT TERM UPDATE NEWSLETTER.
GANN FORMULA FOR DETERMINING SUPPORT AND RESISTANCE We spent the last couple of weeks showing you a good gateway of a method into the Gann calendar. I say gateway because becau se it’s not the only way, but a practical one that will give you an edge in trading immediately. There are other methods and we’ll explore them down the road. What you’ll find is the more you know, the more you don’t know because there is more out there. But we are not here to accumulate academic methods for the heck of it or work with methods that are beyond b eyond our scope of capability. Quite frankly, some of these methods are going to require software like Market-Analyst because it’s just not practical to keep drawing square charts by hand. But what I’m going to show you today require no software, just a decent hand held calculator. Last week I shared with you the fact that markets are spiraling in all degrees of trend all the time. In terms of time we look from one o ne date to the next and the difference is calendar days or trading days. Now we can use solar days also. These are different methods and they all work. We do price and time balance via a ratio method where we look for pivots that have a good balance of price and time. The progression is first you look to trading b ar symmetry. We look to a 34, 55 or o r 161 bar legs. Then we look to the number of points po ints in that leg to get a ratio. If we get a ratio, the chances are that pivot is going to become support or resistance. So we’ve been looking at number of days, candles/bars and an average of points per candle. That’s one complete universe. In terms of the Gann calendar we’ve introduced degrees because everything goes in a 360 degree circle. Why do we do this? As simple as I can make it, a market spiral is a 3 dimensional animal and for the most part it hasn’t caught on with mainstream Wall Street because everyone deals with 2 rd dimensional charts. The concept of moving in terms of degrees answers the 3 dimension. So in terms of time and price we move in terms of degrees. So when you look at a chart in these updates and you see the term degrees, don’t look at the price. The computer does it easily for you but there is is a formula. Here is the formula: formula: (N^.5 + Factor)^2 N is always going to be the price. The factor is the conversion to degrees. I suggest you copy and paste this for your reference Degrees 360 315 270 225 180
=
Factor 2.00 1.75 1.50 1.25 1.00
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135 90 45 22.5 11.25
.75 .50 .25 .125 .0625
There you have it. A 720 move would have a factor 4. So every point is 180 degrees. Now let’s get back to that BKX example from last week. We had a low of 44.40 when you plug that in you get 44.4^.5=6.663 Take 6.663 and add .50 (90 degrees) and you get 7.163. Now square 7.163 and it rounds to 51.30. So you can see a 90 degree move off the low would get you to the resistance point of around 51.30. Just like in our parallel universe of price and time square ratio work, we are looking for the same kind of numbers. We are looking primarily for geometric and Fibonacci numbers. As you’ve been in a position to see, this form of NATURAL resistance withstood the big news event last week with Goldman Sachs. After you understand this kind of analysis, I can’t imagine why you’d waste time depending on the fundamentals. Don’t get me wrong, you want good companies because that’s what drives an economy but when it comes to trading that stuff doesn’t even come close to driving prices. So what happens if you have one of the numbers or both the high and low and it doesn’t add up perfectly? What you are looking for is THE DIFFERENCE between 2 numbers. In the case of the BKX it still works out. The top is 58.81, take 58.81^.5=7.668. We know 44.40 is 6.663 so the difference between 7.668-6.663 is 1.005 or almost a perfect 180 degree move. But let’s take a number off the top of my head. Let’s just say 45.20. We take 58.81 which is 7.668 and subtract the value for 45.20 which is 6.723. 7.6686.723 =.945. What do you do with .945? As you can see from the factors, 360 degrees is 2 points and 180 is 1. SO you multiply .945 by 360 to get 340.2 and divide by 2 to ultimately come up with 170.10. That’s the theory part. Simply put, take the .945 and multiply by 180. In this hypothetical case from price 58.81 down to 45.20 you had a 170 degree move. What we are looking for is support and resistance on these charts based on the geometrics of the situation. It won’t be perfect as the case with the BKX we missed by about 19 cents so there will be slippage on both sides. It can overshoot or undershoot. It’s for us to use the rest of our tools to determine how much significance that slippage has. The best pivots are going to be a cluster of a good geometric price support/resistance on one of the degree turns on the time calendar. We’ve had a good year of practice with the ratio work. There are pivots in all shapes and sizes. But when they line up and validate, those are the ones you take most seriously.
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But if you want to get away from hand held calculators you will either need to start working with a spread sheet and/or allow a computer program to line out the various support and resistance levels for you. There’s lots of fun applications to this, but it’s a serious forecasting tool. Here’s one example. Let’s take the SPX bull market. The low was 768 and high 1576. The value for 768 is 27.71 and 1576 is 39.69. The difference is 11.98. That’s just about 12 and we know that for each 2 points is a 360 degree spin around the dial. Take 11.98*180 and you get 2156. 6*360 is 2160 so we can say the bull market completed as the price action spiraled around 6x. It was off by a mere 4 degrees, not bad for a 5 year move. Then you take the fact it turned on the 5 year anniversary of the 2002 bottom and you have some real incredible market precision. What’s interesting is we are only touching the tip of the iceberg. There are other applications and means to forecast markets. This is already a very powerful method of doing it. But we need to go slow for the benefit of the whole group. But as the days and weeks pass, we’ll build on it.
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GANN CALENDAR
This is the Gann square of nine wheel. It’s probably as big as I can reasonably fit this on the page.
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The first question is why would we be interested in such a contraption? Or, why was Gann interested in this thing? This is the subject of many books but briefly for today picture that you are looking at the Great Pyramid, just like the one at the Luxor in Las Vegas. Seriously, what Gann figured out is what we are doing is looking at a 3D activity on a 2 dimensional price chart. Markets are always spiraling around in circles as I will show you in the coming days and weeks. Prices move on the pyramid, so to speak in geometric angles. The significance here is we have a number system of 1 to 9, the second level expand the numbers proportionally out to 360 and beyond that to infinity. But from level to the next is the square root of the number plus 2. Keep in mind all of the numbers are rounded. If you look at the number 6, for instance the square root of 6 is 2.449 Add 2 to that for 4.449 and that number squared is 19.79. You see the next number out from 6 is 19. But go down the left side with the odd numbers and you see 9, 25, 49, etc. The square root of 9 is 3 and 3+2=5 and 5^2=25. That’s basically how the square works. What’s important on the square are the numbers running across and down the middle. These are known as the cardinal cross. These are 90, 180, 270 and 360. The next set of diagonals are 45, 135, 225 and 315. This can be broken down further. But in our ratio work with my readings, we are looking for price and time to balance out the same way. But the big difference is we are capturing a 2 dimensional pattern (price and tim e axis) point in time. In this method we are going one level deeper to capture the 3D spiral that you can’t see on a price chart. Some of you may have been taught differently, but that’s the way I understand it. What we are looking for in terms of price and/or time are geometric or even Fibonacci movements across a 3d plain. We are looking for movement in terms of degrees. There’s a formula for it which we’ll get into next Thursday. But on the BKX we had a move from 58.81 to 44.40. From 58.72 that would have been a perfect 180 degree move. There’s always going to be some slippage. From the low to 51.33 that would have been a 90 degree move. Reference Tuesday’s high at 51.14. When you grasp this concept you can begin to appreciate why the square of 9 is so important as it will enable you to understand where geometric support and resistance is on any chart. But what I want you to be clear on is the Gann calendar. Each day has a numerical representation in degrees. It’s not equal as there are 365 days and only 360 degrees. So here’s a partial list Mar 21=0 Mar 22=1 Mar 31=10 April 10=20 April 12=22 April 13=22.5 April 14=23 April 21=30 May 6 = 45 Flash Thursday
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May 21=60 May 28=67 May 29=67.5 May 30=68 June 21=90 July 2=101 July 3=101.5 July 4=102 July 14=112 July 15=112.5 July 23=120 Aug 7=135 Aug 16=144 Aug 29=157 Aug 30=157.5 Sept 3=161 Sept 22=180 Oct 22=210 Nov 6=225 Nov 14=233 Nov 21=240 Dec 11=260 Dec 21=270 Jan 20=300 Feb 4=315 Feb 19=330 Mar 20=359 You can fill in the rest. What we are looking for from point a to point b is a move of X number degrees that will hit on one of the lines on the square of 9. For instance we are looking for a 90 degree move. We are looking for a 180 degree move. We can even be looking for a 161 or 261 degree move. Didn’t we have that on the MSG chart last week? Lebron decision day came out right on the 160 degree day. We take the origin of MSG on Jan 26 which is 306 to July 8 which is 106. We take 360-306 for 54 and add back 106 which is 160 which is well within our plus or minus one day or degree. But you may have noticed from looking at the Australian charts where the use of the square of 9 dates tool save time how close we came to many hits and some of the hits are a couple of days off. This is exactly why anniversary dates are SO important. Take the October 10, 2002 bottom to the October 11, 2007 top. Its 5 years but in terms of our spiral, the bull market spiraled 5x and ended up right near 1800 degrees. Take 5 trips around the Great Pyramid and you have a complete bull market. We’ve spent a year setting you up for this but with my price and time ratios you’ve seen in a position to see that the stronger clusters make for better pivots. The same thing works in this universe as well.
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Let’s go back to the BKX. I’ve already told you in terms of price it had a nice 180 degree move. But in terms of time it went from 4/21-7/1 which is a move of 70 degrees. Tuesday, with its target at a 90 degree move in terms of price (see above) was day 111 or 81 degrees in terms of time. You see 81 on an important line; it’s on one of those important 45 degree angle lines. That’s why it reversed yesterday and based on Tuesday’s big day nobody saw it coming. But we did urge caution in the banks Tuesday night, didn’t we? Now you know why. See, the problem with Wall Street is everyone spends so much time looking at their earnings reports that they have no clue as to what is really happening on a chart. This form a support and resistance is invisible, but comes with almost perfect precision. The preceding examples I did on scratch paper but I know you need a good visual so I’ve added these charts. These charts are the ASX Materials and Energy cha rt and you can see how we use the Gann Square of 9 dates tool.
Figure 1 ASX Materials
What you do is put the mouse on the high pivot and it automatically calculates the degrees for you so you can measure the move. It does save you the time of having to look up which date is which degree in the reference guide. From these 2 charts you can see the number of hits it gets. The Energy chart had quite a few hits while the Materials chart above caught a double top right on the 90 degree marker. You can begin to anticipate ahead of time when turns in the market are coming.
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Figure 2 ASX Energy
But just as everything else we’ve done here going back to the time my book was published, the best pivots are coming with a balance of price and time. That is going to happen whether we are looking at a scale of trading days to number of points or whether we are comparing price degrees to time degrees. For now, I urge you to play around with some of your favorite charts, take highs or lows and count the number of degrees from one point to the next. You may be blown away by what you find.
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