Gann Theory is a concept that suggests financial markets with many fluctuations always tend toward equilibrium. This claim is based on elements of geometry, mathematics, astronomy, and even biblical references.
In other words, Gann Theory states that regular patterns can be observed in financial markets. Despite experiencing numerous fluctuations and price changes, markets ultimately move toward balance.
According to Gann, there are three key factors to consider when investing in the financial market: stock prices, time, and the prevailing trend. He believed that markets behave cyclically and in a geometric manner.
What Aspects Are Important in Gann Theory?
The most important elements Gann used to make his predictions are related to the following aspects:
- Price: To analyze and study this variable, Gann used support lines, pivots, and geometric angles.
- Time: To analyze time, he studied historical dates and recurring events in the stock market.
- Market Trend: In this aspect, he observed the trends present in the market. This could involve using trendlines and reversal patterns.
Why Is It Called Gann Theory?
Without a doubt, this theory is named after its creator, William Delbert Gann. Gann was born in 1878 into a poor family. His father was a teacher whose main occupation was cattle trading.
On the other hand, his mother was the primary educator within the family. A significant part of Gann and his siblings’ education involved reading the Bible, which influenced the formation of his theory.
His work in a cotton warehouse and a brokerage office also played a crucial role in shaping his ideas. All of this helped him formulate his theory, which he described in his most important work, The Basis of My Forecasting Method. His theory combines geometry, angles, and time to develop projections.
How Does The Projections Are Made?
Gann’s method for making projections begins by identifying a specific point of the asset to be analyzed. This point must indicate a trend change. From this point, lines are drawn into the future in an orderly manner. It is essential that the line is drawn at an inclination of 45 degrees.
These angles are known as Gann angles. They represent potential points of support or resistance, which are used for analysis.
What Are Gann’s Primary Angles, and What Do They Indicate?
The primary or most important angles in Gann’s system are:
- 1×2 Angle: This angle indicates that the price moves one unit relative to a variation of two units of time. It is observed at an angle of 63.75 degrees.
- 1×1 Angle: This angle indicates that the price moves one unit relative to a variation of one unit of time. It is observed at an angle of 45 degrees.
- 2×1 Angle: This angle indicates that the price moves two units relative to a variation of one unit of time. It is observed at an angle of 26.25 degrees.
The 1×1 Angle represents the market’s equilibrium and is depicted as an exact 45-degree angle. This position projects a long-term trend for the market. If the line drawn crosses the price line, it suggests that the trend is likely to reverse soon.
The main Gann angles are the following:
What Other Angles Can Be Found?
Of course, the ideal angle is the 1×1 angle, as it best represents the relationship between price and time. However, this does not prevent the use of other angles, such as those shown in the table. The following is the complete list of Gann angles:
- 1×8 Line: 82.5 grades.
- 1×4 Line: 75.0 grades.
- 1×3 Line: 71.25 grades.
- 1×2 Line: 63.75 grades.
- 1×1 Line: 45.0 grades.
- 2×1 Line: 26.25 grades.
- 3×1 Line: 18.75 grades.
- 4×1 Line: 15.0 grades.
- 8×1 Line: 7.5 grades.
Of course, these projections based on Gann Theory are made by each investor according to their experience. However, this tool is now available as a software platform for brokers. Each broker can use it to conduct their technical analysis.
The Gann Grid
Gann angles can be drawn from a lower to a higher level or vice versa, depending on the point where a trend change is identified, starting with the 45-degree line.
Consequently, if the price is above the 45-degree line, the market shows an upward trend. If the price is below the 45-degree line, there is a downward trend. However, support and resistance points cannot be ignored, as they can impact the trend.
In conclusion, Gann Theory can be considered a very important tool for making projections in financial markets. The most critical aspect is the equilibrium between price and time, which serves as the foundation for projections in this dynamic market. However, it is advisable not to rely solely on one tool. Using other tools in conjunction to confirm the trend is recommended.
