Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston BASIC TECHNIQUES
Applying Gann Angles To Computer Charts Tried and true and far from being discarded, Gann angles are daily tools for some traders. Here’s how to use two of W.D. Gann’s central ideas in today’s computerized environment.
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of a chart are totally different things and should not be confused. Squaring a chart is scaling data into uniform proportions, while Gann squares are squares containing a numerical sequence that W.D. Gann used to forecast future swing points. Applying Gann angles is a logical, mathematical method that requires requi res only a few drawing tools to reproduce, or o r they may be applied to data via a personal computer. Here are two specific methods of preparing and implementing Gann techniques, updating the hand method with the use of software.
rader William D. Gann became famous in the early 20th century for his ability to forecast exact price targets in the stock and commodity markets. To arrive at his forecasts, W.D. Gann used a combination of GANN BY HAND methods, ranging from simple counts and angles to Before we examine Gann techniques with the use of correlating natural events. Of course, many securities software, let’s look at the theories behind them. that exist now did not exist then, and volatility is very different from what it was in his time. However, the geometrical relationships that he applied to data appear to work equally well on modern data. Of the work that he passed along, two of perhaps the best known but often misunderstood techniques are Gann angles and the squaring of data on charts. Gann squares and the squaring FIGURE 1: SOYBEANS. This hand-drawn chart of 1948 soybeans depicts W.D. Gann’s basic techniques of drawing trendlines.
(Reproduction (Reproduction courtesy of John Wiley & Sons.)
by Brent Aston Copyright (c) Technical Analysis Inc.
Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston
Squaring: That Gann was fascinated by squares is evident in his work; he squared price and time, and he used a repeating count of four. To draw Gann angles, it is essential to set up your own chart the way that Gann did so that it is squared. Take a look at Figure 1. A perfect square is equal in both width and height, with four equal sides and four right angles. Gann hand-plotted his data onto graph paper that consisted of small squares combined into larger squares containing 16 of the smaller squares. That square ratio is simply expressed as 4x4 (that is, 16 squares = 4x4). The same ratio of width to height can be expressed as 1x1 or 1-to-1. When Gann plotted price on his charts, the data was in a 1-to-1 ratio, indicating one point to the square on the vertical axis, and one day (or one bar) to the square on the horizontal axis. This ratio — one point to one day — works well with some securities, but not all. Some securities require the use of fractions or decimals for the points. Gann’s method of squaring tends to confound many would-be practitioners. However, squaring charts by hand can be as simple as drawing a line and putting data on a 1-by-1 grid. A 1-by1 grid works well on the grains, and that is what I use. Beginning with one day of data for wheat contracts and a daily range of five points, draw a line on the vertical axis five squares long. If the close were one point from the high, it would be one square lower than the top of the line just drawn. The horizontal space from the day before (if any) should be one square wide (Figure 2). If the next bar has a four-point range that closed two points higher than the previous high and had a low one point lower than the close, it would be plotted in relationship to the first bar, one square over for the day, and from one square below the close of yesterday to three squares above it. The third bar plotted on the next day has a range of 3, a close that is one point lower than the previous close D L A R E G Z IT F K CI R T A P
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Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston
and a high that is one point lower than the previous high.
proportionally. Here’s how to do it using SuperCharts or TradeStation. The process is surprisingly similar to squaring Gann angles: Why Gann angles have a charts by hand. Be aware that when using some correlation to the market may be explained software programs, the angles are not always by the fact that humans instinctively respond accurate, depending on your monitor, its to ratios like halves, fourths, and even thirds, resolution, or your display hardware. You perhaps because the human mind likes to may find it useful to get a protractor or a 45have a sense of order. Artists certainly know, degree angle-drawing tool to check the intellectually and instinctively, that the eye accuracy of the line angles. When adding, will follow a line and that we perceive the moving, or configuring angled trendlines, world in a series of relationships that the always check the angle by clicking on it to mind finds familiar. make sure that it has not been distorted in FIGURE 2: TRIAD OF BARS. Here are three some way. hand-drawn bars and a 45-degree Gann angle. Adding Gann angles by hand: On a handUsing the wheat contract as an example, drawn chart, only a straightstart by selecting the recedge is needed to line up the tangle drawing tool. For ease 1x8 1x4 1x3 1x2 opposite corners of a square of drawing, begin with round and draw a 1-to-1 angle. A numbers like 20, 110, or 330. The 1x1 line 45-degree protractor or a variable-angle Put the tool on the selected angle drafting tool can be used to level and begin drawing a measure other angles. W.D. rectangle that is 10 points Gann arrived at the other high by 10 days wide. Use 1 2 x e n i angles by dividing a large full points, not quarter points, h l 4 t square up into 64 smaller again for ease of drawing. 1 x squares (8x8) (Figure 3). Full points won’t work for 3 l in e 3 r d Excepting the 3x1 and the everything, but they usually 1 n e 4 x n d l i 2 1x3 lines, Gann angles were work for wheat. drawn from either the top or If the dimensions are x 1 The 1 s t l i n e 8 bottom corner of the large accurate, it is not important large square square to various points where the rectangle is drawn. where the smaller squares In Figure 4, the rectangle has intersect the larger square. been drawn on a September Specifically, Gann angle FIGURE 3: SQUARE. Gann derived nearly all his angles by drawing them on an 8x8 square, wheat chart from 260 to 270 lines radiating outward from using the intersections of the internal boxes and the external box; 3x1 and 1x3 are derived in the vertical axis and from the bottom left-hand corner differently. August 2 to August 16 on were drawn in a counterthe horizontal axis (count clockwise direction from that corner to the point where the top only the spaces between bars to reduce confusion). Clicking on of the small square in the lower right-hand corner intersects the the rectangle between corners makes it possible to drag it larger square, resulting in an 8x1 line. Likewise, the next line accurately into place. was drawn to the point where the second square from the Now, using a trendline tool, put a 45-degree angle line on the bottom intersects the large square, resulting in a 4x1 line. The screen. Line it up with the rectan gle’s corner by clicking on the 3x1 line intersected a point a third of the distance from the line and dragging it until it lines up with one corner of the bottom to the top of the large square. Then a line was drawn to rectangle (Figure 5). the point that was four squa res from the bottom, resulting in a Now begins the sometimes frustrating sequence that squa res 2x1 line. Finally, the 1x1 line was drawn to th e opposite corner. the data and concludes the squaring process. Open the format Following that series of lines, Gann angle lines radiate from price data dialog by right-clicking on the screen to bring up a the bottom left corner to the same points, beginning with the dialog box. Select the scaling tab. Adjust the scale using the first small square in the upper left-hand corner and proceeding user-defined maximum and minimum boxes. Adjust it for a across the top of the square. These G ann angle lines resulted in larger or smaller scale by increasing or decreasing the values in the converse angles of 1x8, 1x4, 1x3, and 1x2. the boxes until the 45-degree line goes exactly from one corner of the rectangle to the opposite corner. This involves some trial and error but may be simplified by increasing or decreasing the SQUARING GANN CHARTS WITH A COMPUTER These days, of course, computers are by far the preferred method for values with round numbers. As the line gets closer to the collecting, plotting, and analyzing data. The Gann process of targeted corners, however, smaller and smaller numbers are squaring charts is simply a matter of getting the data aligned required for accuracy. Copyright (c) Technical Analysis Inc.
Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston
FIGURE 4: SQUARING CHARTS ON A COMPUTER. Here is a rectangle that has been set
FIGURE 5: DRAWING A LINE. Have your computer draw a perfect 45-degree line and place
up in preparation to be squared.
it on the corner of your Gann square. It usually won’t go to the opposite corner correctly because your chart has yet to be squared.
At this point, note that the rectangle has changed and continues to change shape until the rectangle finally becomes square (Figure 6). The line may have to be moved back to the corner(s) after each change in scale. It may be advisable to use the magnifying feature in Windows or magnifying software such as Loupe for greater accuracy. If SuperCharts’ magnifying feature is used, the scale will change, throwing off the lines and angles. (When you’re finished, leave the 45-degree angle line on the screen to be used later.) If done correctly, the chart should now be squared as in Figures 6 and 7 and ready for Gann angles. Once charts are squared, 45-degree angles or any other angles can be accurately represented in only one way. Lines parallel and perpendicular to Gann angles may also be added to a squared chart.
Gann tool 1x1 line overlays hand-placed 1x1 line
45˚ line (1x1)
DRAWING GANN ANGLES WITH A COMPUTER Many software programs come with various Gann angle drawing tools. The Gann fan tool in SuperCharts can be used to turn on all of the various angled Gann angle lines at once or each individually. Now go back to the chart that y ou have just squared, select the Gann
FIGURE 6: ADJUSTING THE SCALE. Using your software’s scale adjustment (format price
data in Omega products), adjust the vertical scale until the 45-degree line goes perfectly from one corner of the box to the opposite corner. When it does, the chart is squared.
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Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston
Gann Fan
-45 degree angle 1 x 1 Gann
10 x 10 square
FIGURE 7: GANN FAN PARALLEL TO THE 45-DEGR EE ANGLE. Once the scale is adjusted
FIGURE 8: SEPTEMBER WHEAT AND GANN FAN. September wheat declines into the
and the 45-degree line is in place, the Gann fan can be aligned confidently.
summer but rallies to the Gann fan line as autumn approaches. Once a chart is squa red on your computer, you can put on a Gann fan and turn on or off the angles you want dis played.
fan tool, and find a major pivot po int. Apply the Gann fan to the chart (Figure 8). One or more lines should be seen radiating out from that point. Click on the fan to open the dialog box and click on the line that reads “format selected Gann fan,” then click on the properties tab. The Gann fan must be set to the appropriate direction — up or down — for your chart. If the price goes up from your chosen pivot, the fan must be set to the up/right direction; if the price goes down, select down/right. In the time/ price Gann lines part of the dialog box, select only the 1x1 line to start by clearing the checks from all the other Gann angles. Next, adjust the program’s Gann angle. Beginning in the same dialog box, find the input box next to the points per bar; inside this box is a default number. Increase or decrease this number until the 1x1 Gann fan tool plot is at a 45-degree angle. The angle of the Gann line should ch ange when the number is changed. If the 45-degree angle trendline is still on the chart, the points per bar number can be adjusted until the lines are parallel (Figure 7). Once the squaring and setting of the points per bar are complete, the scale and spacing can be changed without affecting the relative position of the fans, although they will look different because they are effectively being stretched to a different scale. Once you’ve gotten the right number of points per bar, put it on the chart using the text tool. Having the number on hand for reference purposes allows you to add more Gann fans and use it for future reference. Unfortunately, the pointsper-bar number rarely works on other contracts of the same or different securities. However, having the number can speed up the process of zeroing in on the right angles when putting Gann angles on other charts of the same security. Gann fans can be duplicated by using the tool that allows you to add a parallel drawing object. After clicking on any Gann fan, you may drag it to any location on the screen. The color and style of various fans can be altered for clarity. Now, the other Gann angle lines listed in the dialog box
can be turned on as needed. Fans can be added in any of the four possible directions — up/right, down/right, up/left, and down/left.
PLACEMENT Gann fans can be started at various points, such as pivot points and Gann angle intersections, as shown in Figure 9. Gann angle lines can begin and extend outward to important swing points where trends change direction. Some experience using Gann angles may reveal new and interesting relationships in the data. In Figure 9, which is a chart of the September Standard & Poor’s 500 index contract, a Gann fan angled upward off a previous high helps to define the support and resistance (point A) of a subsequent movement into new highs. After last year’s pullback in the autumn, the price stayed within the upper 1x4 and 1x3 ang les. Strong trends like this can be a high percentage move in price and time. Although the red rectangle was a square when the chart was originally squared, changing the scale has made it look longer than it is high. Despite being stretched, the Gann angle lines should line up at the same points that they did when the chart was still squared.
PRACTICAL APPLICATIONS Having squared a chart and applied Gann angle lines to it, how is it used? W.D. Gann was of the opinion that the 45-degree angle line was the most important line on the chart. He went on to say that when the 45-degree angle line was broken, the trend has changed. Study Figure 10. Almost everything in this chart is keyed off the angles coming from the peak at the upper left. Each time the price got near a Gann angle line, it reacted by vibrating around the Gann angles. Often, the price continues to follow these lines until market conditions cause the price to break through. That is often a sustained move.
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Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston
Once a Gann angle line is crossed, the price usually moves in the direction of the next closest line. However, when a Gann angle line is rapidly approached by the price but not crossed, the price will often seem to bounce and move rapidly away from that support or resistance. The price generally gravitates toward the nearest of intersection points, where the Gann angle lines cross. If the volatility is great, this can happen quickly, taking only one or two days. Not all charts will have a price movement that stops in the exact center like the wheat chart shown in Figure 10, but clearly this one did (point A). In May and June 1999, the price was going through several closely spaced Gann angle lines from above and below. This is a zone of congestion and slow trending, but in the wide-open spaces during February, March, and April, wheat had room to run. Further, after three years of downtrend, the wheat price did not cross into the lower right-hand portion of the Gann square. Does this suggested support forecast an upcoming bottom? Using this example (Figure 10), some Gann theories can be assessed by examining the results of squaring the wheat chart and placing Gann angles on it. Does the price vibrate around these Gann angle lines? Was the 45-degree angle important? Did the 45-degree angle define the trend? It appears so. Using overbought and oversold indicators, or trend indicators and any number of other indicators with Gann angles has intriguing possibilities. For example, when the price has been moving down and comes near an intersection, we might find that the relative strength indicator (R SI) or stochastic indicator is oversold and may suggest a divergence. Such verification may improve a trader’s odds of success.
CONCLUSION
A
1x4
1x3
1x1
FIGURE 9: S&P FUTURES. As the Standard & Poor’s futures contract rebounds off historical highs,
Gann lines from previous pivot points provide support and resistance at a variety of locations.
A
FIGURE 10: SEPTEMBER WHEAT . Prices move down along a 1x1 angle to point A, where they bounce
Once charts are squared, Gann angles are not upward. Subseque ntly, angles drawn equidistantl y after the low is in place identify that reaction as the subject to changes in scale. When applied correctly, center of the downtrend’s progress. they are certainly not random, and they show significant areas of support and resistance. Further, they can be something of a roadmap, showing where and how REFERENCES AND RELATED READING price action will behave in both price and time. Hartle, Thom [1999]. “Gann Swings And Intraday Trading,” Finally, the process of squaring charts and adding geo metric Technical Analysis of STOCKS & COMMODITIES, Volume Gann angles can be time-consuming, either by hand or by 17: October. computer. While applying Gann theory by computer may be Kaufman, P.J. [1998]. The New Commodity Trading Systems quicker and simpler in some ways, it still takes careful scrutiny And Methods, 3d edition, John Wiley & Sons. to use computerized Gann angles to their greatest advantage. Krausz, Robert [1997]. A W.D. Gann Treasure Discovered , Once done, however, it is best to focus on the basic lines such Geometric Traders Institute, 1835 US 1 South 119, Suite as the 1x1 angle and look for price action to track and react to 352, St. Augustine, FL 32086, 512 443-5751, fax 512 443it, no matter if by computer or by hand. 7119, Internet http://www.fibonaccitrader.com Marisch, Gerald [1990]. The W.D. Gann Method Of Trading, S&C Brent Aston is a private trader. Windsor Books. Copyright (c) Technical Analysis Inc.
