{"id":557,"date":"2021-05-23T11:32:55","date_gmt":"2021-05-23T11:32:55","guid":{"rendered":"https:\/\/stockezy.com\/?p=557"},"modified":"2021-05-23T11:32:55","modified_gmt":"2021-05-23T11:32:55","slug":"what-is-gann-theory-in-the-stock-market","status":"publish","type":"post","link":"https:\/\/stockezy.com\/what-is-gann-theory-in-the-stock-market\/","title":{"rendered":"What is Gann Theory in the Stock Market? How To Use Gann Indicators"},"content":{"rendered":"
Are you new to the stock market and wondering what is \u2018Gann Theory\u2019?<\/p>\n
Don\u2019t worry! I am here to help you out. Today, I am going to discuss a more than a century-old trading strategy. This strategy involves the use of Gann Theory and I am going to tell you all about it from A through Z.<\/p>\n
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Gann theory was a concept developed by William D. Gann<\/a> in the 1900s. He was a successful trader of his time and believed that the change in the stock price has an angle to it. In other words, an asset moves in angles. He observed that the change in price was related to the natural geometric shapes prevailing and predicted the future movement of price with relation to time for any stock. This is why the Gann theory is also known as the \u2018Gann Angle theory\u2019.<\/em><\/p>\n Gann trading strategy is still in use and if correctly applied, can predict an asset\u2019s movement up to at least 90% accuracy. W. D. Gann was of the opinion that there exists a time cycle in nature that applies to the market as well. The discovery of his theory was based on natural geometric shapes, astrology, astronomy, and ancient mathematics.<\/p>\n According to Gann theory, the angles and patterns formed by an asset in the market can be used to predict the future movement of the price.<\/p>\n William Delbert Gann or W. D. Gann or William D. Gann was a finance trader and astrologer who developed various technical analysis tools such as the Gann angles. He was also fond of sharing his knowledge in the form of writing and hence authored numerous books and courses on trading. He is known to author the first-ever book to be written on the share market named \u201cThe Truth of Stock Tape\u201d<\/em>. He made over $50 million before he died in 1950 and ruled Wall Street for over 50 years. He had a trading accuracy of over 92%.<\/p>\n Moreover, he invented the spiral chart often known as the \u2018Square of Nine\u2019<\/em> chart.<\/p>\n This chart is used to apply the Gann trading strategy or Gann theory. It is a nine by nine matrix of numbers from 1 to 81 arranged in a counter-clockwise spiral. The number 1 is placed in the center and the numbers after it are placed in a spiral out from it. The picture below will give you a clear view.<\/p>\n <\/p>\n Here you can observe that the numbers are moving in an anti-clockwise spiral in an increasing order starting from 1 in the center. Once a spiral\/cycle\/bracket gets completed, it moves on to the next one. For example, 2-3-4-5-6-7-8-9 are in one bracket after which the number 10 gets placed in the next bracket.<\/p>\n This Gann indicator has cardinal and ordinal numbers. Cardinal numbers are the ones in Blue and ordinal numbers are the ones in Yellow. You\u2019ll also notice that the ordinal numbers are square numbers. W. D. Gann explained that any number that falls on any of these numbers works as strong support or resistance depending on the stock.<\/p>\n An interesting fact about the numbers present in the Gann square is that they follow a certain harmonic pattern. For example, the number 52 has the number 27 next to it. This can be calculated as follows<\/p>\n Where 27 is the number next to 52! This applies to all numbers in the Gann indicator.<\/p>\n <\/p>\n Recommended:<\/strong> Peter Lynch\u2019s Formulas for Valuing a Stock\u2019s Growth<\/a><\/p>\n D. Gann believed that the number \u20189\u2019 was unique and had something special. He believed that 9 is a crucial number and is used to measure all things. The number is the largest and last single-digit number. It is also evident that if you multiply any number by 9, and then add up the digits the sum would be 9.<\/p>\n For example, \u00a0 4 x 9 = 36 \u21d2 3 + 6 = 9<\/p>\n 6 x 9 = 54 \u21d2 5 + 4 = 9<\/p>\n Every price movement has an angle to it which can be explained by the Gann square.<\/p>\n <\/p>\n Key important angle numbers are as follows:<\/p>\n Note: <\/strong>These angles are counted counterclockwise<\/em><\/p>\n Gann indicators are easy to use and can be an easy trading strategy. It is somewhat similar to the Fibonacci levels. If you don\u2019t know about the Fibonacci series don\u2019t worry.<\/p>\n A Gann angle is a line (a diagonal, generally) that moves at a uniform rate. It might be sometimes confused with a trendline, but trendlines do not move at a uniform rate. Higher bottoms indicate an uptrend and lower tops indicate a downtrend. Uptrends are made after connecting bottoms and downtrends are made after connecting tops of the price. With the help of the Gann angle, a trader can set targets and trade accordingly. Gann trading strategy can be used to predict support and resistance levels of an asset with the help of Gann angles.<\/p>\n When a certain Gann angle is reached (or angle level is broken), it tries to reach the next angle. These angles are marked generally as 1X2, 1X1, and 2X1. Here, 1X2 means that with every one unit movement of price movement with two units of time, this defines the slope of the angle. 2X1 represents an angle in which there is one unit movement in time with two unit movements of price. 2X1 shows a weak trend, whereas 1X2 shows a strong trend. In other words, the steeper the angle the stronger the trend and flatter the slope of the angle, the weaker the trend is.<\/p>\n There could be various angles made using this concept such as 1X8, 1X4, etc. The following image will give you clarity.<\/p>\n 1X1 is known as the 45\u00b0 angle.<\/p>\n <\/p>\n Gann developed this trading strategy based on the assumptions that<\/p>\n A trader should keep in mind that the market moves in angles and these angles remain that same. These angles only get rotated. An asset moves from angle to angle and this is the \u2018Rule of All Angles\u2019<\/em>. This rule states that once an angle is achieved it moves to the next angle. Gann angles are most commonly used to find support and resistance lines.<\/p>\n When support gets broken it is known as breakdown<\/em> and indicates that the price will move down. On the other hand, when resistance gets broken it is known as breakout<\/em> and represents that the price will go up.<\/p>\n Once a trader sets his time frame for making a trade he\/she draws the Gann angles over the stock chart. These angles could be 1X1, 2X1, 3X1, 1X2, 1X3, etc. according to the need and then the trader reads the movement of price based on these lines.<\/p>\n Note: <\/em><\/strong>Uptrending angles describe support and downtrend angles indicate resistance. <\/em><\/p>\n Sometimes a combination of angles and horizontal lines is used to define the support or resistance. For example, if a stock is in a bullish mode then it might retrace up to 50% this level will set as the support level for the stock, whereas, if a stock is in bearish mode the 50% retracement level will mark an important resistance level for the stock. When the price has been moving between angles, these angles mark as strong support and resistance levels for the asset. These areas are also known as price clusters.<\/em><\/p>\n It is important to note the strength of the trend in the market. If a trader trades in a weak trend the risk increases and thus might result in losses. A trader must always enter a trade with a stop loss. The stop-loss price is set at the level of price opposite to what the trader expected the price to move in. For example, if a trader thinks bullish of a stock to trade, they should set the stop loss at a price lower than the current market price or last traded price (CMP or LTP).<\/p>\nWho was William Delbert Gann?<\/strong><\/h3>\n
What is the \u2018Spiral Chart\u2019 or \u2018Square of Nine\u2019 chart?<\/strong><\/h3>\n
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Why the number 9?<\/strong><\/h3>\n
What are Gann Angles?<\/strong><\/h3>\n
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How is the Gann Indicator used?<\/strong><\/h3>\n
How to apply Gann Trading Strategy?<\/strong><\/h3>\n
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