2006 Gann Managament Ltd. All Rights Reserved. Gann Management Limited is authorised and Regulated by the Financial Services Authority The Gann Analysis Rule Book A Man Who Never Changes His Mind Will Have No Change To Mind William. D. Gann Telephone 0161 285 4488 Email: info@gann.co.uk Web: http://www.gann.co.uk
INDEX Title Page Number Introduction 2 Gann s Trading Hints 3 2 Week Chart 4 2 Day Chart 6 Major Gann Levels 7 All Gann Levels 9 Percentages 11 50% Retracement 14 Percentage Retracement of Major Moves 16 Angles from Lows 18 Angles from Highs 20 Angles from Zero 21 Natural Resistance Levels 26 Natural Resistance from a Level 30 Single, Double or Triple Tops & Bottoms 31 Fourth Attempts at a Level 33 Trading Ranges 34 Trend Indicator Line 35 Signal Entry 39 Stop Losses 41 Comparative Analysis Using Moving Averages 45 The Moving Average Golden Cross 48 How a subject is analysed 50
INTRODUCTION Gann analysis is an art which is improved with hard work and experience and is a form of Technical Analysis which uses past price movements to determine future positions. You should not attempt to make an investment decision without first learning all the techniques contained within this book. Gann used a combination of mathematical rules to help to determine where and when he should make a trade. Try to imagine the analysis process as similar to piecing together a jig-saw puzzle. One piece is not conclusive evidence of the final picture, but as more pieces fall into place the picture becomes clearer. We approach Gann Analysis in a similar way. Each technique is explained in turn on the following pages. It is advisable to start your analysisonthelongtermmonthlychartfirst,thenmovetotheweeklychart,andthenthedaily chart. When you have identified an area where action might be warranted, wait for the short term indicators on the daily chart to confirm your signal before making the trade. (One of themostusefulfeaturesofgannanalysisisthatallthetechniquescanbeappliedtoanytype of investment. Therefore where a share is used to illustrate an analysis feature, the technique can be applied to a commodity too). ALWAYS use a stop loss which is a method of closing a loss-making position or protecting any gains. Without a stop loss you could be remorselessly punished by the market. The function of the IDS software is to present up-to-date price information in graph form and to provide the tools with which you can utilise the Gann Techniques. The program will not make the decision for you and therefore your interpretation of the chart is of paramount importance. You should not let your own hopes and fears influence your decision. William Gann is credited by many as being the most successful trader in the history of the markets. He has said that you can make four good trades a year and become extremely rich. This means that you do not have to be invested all the time. The desire to make a trade does necessarily mean that it would be correct to do so. Let your aim be to wait for indications which you simply cannot ignore. Patience is more difficult for the Professional Advisor or investor, but he too should understand that there is a time to buy; a time to hold but not buy more; and a time to sell. On the following page you will find Gann s Trading Hints which were devised and operated by William Gann. If you break any of these rules you are likely to put your investments in jeopardy. Study them well, for without these rules, all the investment analysis techniques which form the rest of the book will be to no avail. To accompany this book, a continuous series of workshop training sessions is provided by Gann Management Limited. Our most successful clients make a point of regularly attending these workshops- regardless of their experience. A common comment made by those who do is Every time I attend a workshop I learn something which makes it well worthwhile. (2)
GANN S TRADING HINTS 1. Amount of capital to use: Divide your capital into 10 parts and never risk more than 1/10th of your capital in one trade. 2. Always use stop loss points. They should be mental stop loss points. You should alwaysprotectyourtradeswithstoplosspointsthreetofivepointsawayfromtheprice paid. 3. Never, under any circumstances, overtrade. This would be violating the rule on capital. 4. Never let a profit run into a loss. After you once have a profit of 3 points or more, continue to raise your stop loss order so that you will have no loss on capital. 5. Do not buck the trend. Never buy or sell if you are not sure of the trend according to your charts. 6. When in doubt, get out, and do not get in when in doubt. 7. Trade only in active shares. Keep out of slow dead ones. 8. Never limit your orders or fix a buying and selling price. Trade at the market. 9. Don t close a trade without good reason. Follow up with a stop loss point to protect your profits. 10. Accumulate a surplus. After you have made a series of successful trades, put some money into a surplus account to be used only in emergency or in time of panic. 11. Never purchase a share merely to obtain a dividend. 12. Never average a loss. This is one of the worst mistakes a trader can make. 13. Never get out of the market just because you have lost patience, or get into the market because you are tired of waiting. 14. Avoid taking small profits and big losses. 15. Never cancel a stop-loss point after you have placed it at the time you make the trade. 16. Avoid getting in and out of the market too often. 17. Be just as willing to sell short as you are to buy. Let your object be to ride with the trend and make money. 18. Never buy just because the price of a share is too low, or sell short because the price of a share is too high. 19. Be careful about pyramiding at the wrong time. Wait until the share is active and has crossed resistance levels before buying more and until it has broken out of the zone of distribution before selling more. 20. Never hedge. If you are long of one share and it starts to go down, do not sell another share short to hedge it. Get out of the market, take your loss and wait for another opportunity. 21. Never change your position in the market without good reason. When you make a trade,let it be for some good reason or according to a definite plan, then do not get out without a definite indication of a change in trend. (3)
2 WEEK CHART See Figure A. The 2 week chart is the means by which we determine the medium to long term TREND of a Share, World Market, Commodity, Currency, Fund, etc. All the great traders will give you one piece of advice - NEVER BUCK THE TREND. If the trend is up (bullish) - then you should normally only consider purchases (until the trend turns bearish). If the trend is down (bearish) - then you should normally only consider short signals or Put options (until the trend turns bullish). The 2 week chart is the chart illustrated in Figure A. (The actual prices of the stock have been removed to make the illustration clearer.) If the PRICES break ABOVE the last 2 WEEK CHART TOP for two consecutive, clear days - the trend is UP and is confirmed as UP when followed by higher tops and bottoms on the 2 week chart. If the PRICES break BELOW the last 2 WEEK CHART BOTTOM for two consecutive, clear days-thetrendisdownandisconfirmeddownwhenfollowedbylowertopsandbottoms on the 2 week chart. THE CONSTRUCTION OF THE 2 WEEK CHART When an item makes two consecutive weeks of *higher prices then the 2 Week Chart moves up to follow the prices. The 2 Week Chart will then follow the prices as they move higher. * Higher prices definition - When the highest price of the week exceeds the highest price of the previous week, and the lowest price of the week is higher than the lowest price of the previous week. When an item makes two consecutive weeks of **lower prices then the 2 Week Chart will turndowntofollowtheprices. The2WeekChartwillthenfollowthepricesdownastheyfall. ** Lower prices definition - When the lowest price of one week is lower than the lowest price of the previous week, for two consecutive weeks - N.B. The high price of the weeks are of no consequence. Youwillnotethatthehorizontalsectionsofthischartareallofasetwidth. Theymerelyshow that the chart has turned over in either direction. As the 2 week chart is only registering the changes in direction of the prices, it does not follow the time scale of the actual prices. You will usually find the 2 week chart compressed onthelefthandsideofthegraphunlesstherearenumerouschangesindirectionasdefined in the explanation above. (4)
THE APPLICATION In most cases only CONSIDER buying a stock when the DAILY PRICE SPREAD of the stock has crossed the last 2 week chart top for at least two clear and consecutive days i.e. Whenthetrendisbullish; andconsidershortingortakingoutaputoptionwhenthedaily PRICE SPREAD of the stock has crossed the last 2 week chart bottom for at least two clear and consecutive days. i.e. When the trend is bearish. NB - The DAILY PRICE SPREAD is the whole of the traded prices on the day. THISISNOTNECESSARILYASIGNALTOBUYORSELL.ITISATAPOINTWHENYOU CAN CONSIDER BUYING OR SHORTING SUBJECT TO SUPPORTING SIGNALS FROM THE OTHER RULES WHICH WILL FOLLOW. Once a trend is established as confirmed by the above notes, it tends to continue. Under certain circumstances you can justify taking out a position against the trend, but you must be an experienced and competent Gann trader to undertake such a situation. STOP LOSSES 2 week chart bottoms are very often used to place LONG TERM STOP LOSSES. See Long Term Stop Loss Rules. (Page 42) FIGURE (A) DOWN DOWN UP (5)
2 DAY CHARTS (See Figure B) Please refer to the notes on the 2 WEEK Chart. The 2 day chart is of exactly the same construction as the 2 WEEK Chart. The difference being, that where it would take 2 consecutiveweeksofhighertopandbottompricestoturnthe2weekchartbullish,ittakes 2 consecutive DAYS of higher top and bottom prices to turn the 2 DAY Chart bullish; and whereas it would take 2 consecutive WEEKS of lower bottom prices to turn the 2 WEEK Chart bearish, it would take 2 consecutive DAYS of lower bottom prices to turn the 2 DAY Chart bearish. THE APPLICATION The 2 day chart bottoms can be used to place medium term stop losses. FIGURE (B) The above graph shows an example of a Two Day Chart (6)
MAJOR GANN LEVELS (See Figure C) Gann Levels are predetermined and mathematically calculated resistance levels. They are calculated using the All Time High price of a stock (the highest price anyone ever paidforit,whenadjustedforscripandrightsissues);thealltimelowprice(thelowestprice anyone ever sold it for, when adjusted for scrip and rights issues); and Zero. HOW THE GANN LEVELS ARE CALCULATED MAJOR GANN LEVELS EXAMPLE Find the extreme high 100 and Zero 0 Find 50% between the two levels 50 (this is the G1 level) Add 50% of the difference 100 between the extreme high 10 and the extreme low to the 55 (this is the G2 level) extreme low Take the extreme high 100 and Zero 0 Find 25% of the difference 25 (this is the G3 level) between the two levels Add 25% of the difference 100 between the extreme low and extreme 10 high, to the extreme low. 32.5 (this is the G4 level) THE APPLICATION OF MAJOR GANN LEVELS Use as probable levels of support and resistance. The Major levels are the G1, G2, G3 and G4. The G1 is an extremely important level. e.g. If a share has fallen to its G1 level, it is one of the few occasions that could influence a trade against the main trend - especially if it is the firsttimeithasfallentotheg1.ifasharegoesbelowtheg1level,itrunstheriskofeventually getting down as low as the G3 level. If a share goes beneath its G3 level, this can be considered very bearish indeed. TheG2level(whichisalwaysabovetheG1)canalsobeanimportantlevelandasharemight find support at the G2 and therefore not reach the G1. The G2 is also the most important 50% Retracement Level - see page 15 If the G1 and G2 are close together, half way between the two can often prove to act as support/resistance. If the G1 and G2 levels are a good distance apart, then you could trade short term between the two but it would only be a worthwhile exercise if the dealing costs can be covered within the range whilst still leaving room for profits. (7)
NB. As the Gann levels are calculated using the All time extreme high and low prices, they will of course be different for every share. They may not look important when the share is continually moving into new high ground but should prove to be very useful when the trend turns down. If the share you are analysing is moving into new high ground, remember that the Gann levels will change every time the price moves higher. Therefore, if you are studying a graph of historical prices and you are trying to gauge the effect that the Gann levels have hadonthepricemovementinthepast,youmustcalculatewherethegannlevelswouldhave been at the time, by finding out where the extreme high and low were at the time - it will make all the difference! FIGURE (C) The following figures are based on prices at 10-6-92 Extreme high = 5460.04 Extreme low = 345.000 G1 = 2740.00 50% of extreme high & zero. G2 = 1325.4 50% of extreme high & extreme low. Plus extreme low. G3 = 576.5 25% of extreme high & zero. G4 = 835.2 25% of extreme high & extreme low. Plus extreme low. (8)
ALL GANN LEVELS (See Figure D) Please make sure that you have read the preceding notes on Major Gann Levels before continuing. All Gann Levels are useful in supporting signals to trade at levels where the Major Levels would not apply. CONSTRUCTION Find the range between highest price a share has ever traded at and Zero. Then divide this range by eighths and thirds. EXAMPLE The highest price anyone ever paid for the share... 100 Divide this price by eighths... 12.5, 25, 37.5, 50, 62.5, 75, & 87.5 Divide this price by thirds... 33.3 & 66.6 Next, find the range between the highest price the share was ever traded at, and the lowest price a share was ever traded at, then divide this range by eighths and thirds. EXAMPLE The highest price ever paid for the share... 100 The lowest price ever paid for the share... 10 Divide the range between by eighths and add extreme low... 21.25, 32.5, 43.75, 55, 66.25, 77.5, & 88.75 Divide the range by thirds and add extreme low... 70 40 & TIP-TheeasiestwaytoworkoutthelatterGannlevels(usingtheextremehighandlowprice) is as follows:- Subtract the low from the high i.e. 100-10 = 90 Divide 90 by eighths and thirds then add the low price to each division. i.e. 1/8 plus 10, 2/8 plus 10, etc. THE APPLICATION These non-major Gann levels will provide assistance in locating probable intermediate levels of support or resistance where they are grouped together. Big gaps between Gann levels show areas where large, fast moves may occur between the gaps. (9)
FIGURE (D) All Gann Levels The ALL time high and zero divided by eighths and thirds. The ALL time high and the ALL time low divided by eighths and thirds. Remember that the levels shown on the graph above are calculated using the 92 extreme high and were not in the same position prior to that date. (10)
PERCENTAGES (See Figure E) First of all, you must identify what might be considered important tops and bottoms. The 2 Week Chart can make this easier. Apply the 2 week chart and identify where the 2 week chart has formed tops and bottoms. Draw the percentages from these points. The more important the top or bottom used then the more effective the percentages drawn from that point will usually be. A move of 50% up from an important low, or down from an important high is the most important percentage you can use and the Percentage Rules are based on the divisions and multiples of 50%. Once you have identified the levels from which to draw the percentages, simply use the percentage facility on your IDS program to enter the levels of 25% and its multiples, and 33.33% and its multiples up from lows or down from highs. You can use smaller percentages, but this is usually reserved for those items which trade in very small ranges such as the bonds etc. or to confirm levels (by adding weight) which have already been identified using the more important percentages. Where you have a number of the percentage levels from various lows and or highs close together you could look to sell on weakness at the level or buy on strength above the level. The graph could appear cluttered at first, but in time you will learn to recognise areas where numerous percentages are grouped very closely together. The analysis will often seem to identify a level of compound resistance above the price and a level of compound support beneath the price. If the price ever breaks up through a major 50% level of resistance, it will often find support at that same level if it comes back down to it. FIGURE (E) (11)
NEW IDEAS FOR GANN PERCENTAGES - GARY STAFFORD TESTED OVER THE LAST TEN YEARS There is nothing new in the following text. The idea that I am trying to impress is that nothing does not work. It may seem as though it has not worked, but the price is just telling you what it is most likely to do next. Also, if a percentage is not working almost exactly then it is not working at all and should not be used for the future. All the rules below are designed to take away the need for hindsight and to allow you to remove percentages that you know with a strong degree of accuracy will not work in the future. I believe that this is the most important thing I have discovered. It is very important that lines are removed when they become obsolete. The percentage rules that I have developed are Gann s percentage rules, but it became clear to me that you can put lines all over the screen, which at the end of the day can stop you from doing anything. Therefore the following rules are designed to remove percentages that are unlikely to work in the future. I should add here (and it is very important)-iamnotsaying the price WILL get there. Just IF it gets there, then act. IF is the most important word. Because at no time am I trying to predict the future. But IF it happens then I will be ready to act. Rules Gann says the most important percentage to add to any low is 50%. So, if a low looks as though it is forming then add 50% to it. If the price reaches 50% from this low then the low must have been a major low, and I am only interested IF the price gets there. However, if the price starts to fall without forming a major low and falls below the initial low. You should then take the 50% level off as it was evidently not a major low. When the price gets to 50% it can do one of two things. It can go up, or it can go down. Great, I hear you say. But, this is exactly how you should think. What the 50% level has given is a point at which to make your buy, sell, hold or do nothing decision. If the price goes through 50% and shows no major resistance (in other words the price continues to make higher tops and bottoms on your trend indicator, 2 week chart, etc.) then add 66.66% from the same low that you added 50% to, as in the vast majority of cases the price will top out at this level. Usually almost exactly. A break of this level with no resistance is a sign of great strength. However, if the trend does turn at the 50% level (the market starts to make lower tops and bottoms in the area of the 50%), then DO NOT put the 66.66% level on as, when the price eventually breaks 50%, in most cases it will show no resistance at this level, (IF it gets there) and is usually the point at which the price accelerates. (12)
Summary so far (1) Add 50% to all major lows. (2) If when the price gets there it continues to make higher tops and bottoms then add 66.66% to the same low as this will be very important in the future if it gets there. (3) If resistance is found at 50% then do not add 66.66% to the same low as it normally breaks this level. But do not consider buying at this level as it might just work. There are other Gann percentages that are important such as 75% but I have not yet discovered when it will work and when it will not, although I think I am close. The following rule is not as strong as the above but this is not to say it does not work very well. When 50% or 66.66% are crossed then the next major resistance is 100%. Again, if the price gets there and shows no major resistance in breaking this level, then this makes 150% extremely important to watch for a major top to be formed. However, if major resistance is shown at 100% then this makes 150% less important and in a lot of cases the price will break through. But remember even though you do not expect resistance you would not buy as it could resist. Summary (1) If 100% works then 150% is less important and should not. (2) If 100% does not work then 150% most likely will be important. Continuation on the same theme You can also use the above rule of 50% and 66.66% from all time highs to find bottoms of markets. But you would have to wait a long time between signals. The reason being, you can only lose 100% of your money, so to fall 50% would be half its value. So you can also use 25% and 33.33% (half of the above) and also 12.5% and 16.66%. On items like interest rates where percentage movements are very small then you keep dividing by two. So for example, when a top is formed I take away 12.5% from this level. IF the price gets there and shows no resistance then I take 16.66% from this high, and expect strong resistance here (the same as the 50% and 66.66% rule). If 12.5% did work then do not use 16.66% as in most cases it will not work. Remember the more you divide 50% and 66.66% by two - the less important it will be. In other words falling to 66.66% is far more important than falling to 16.66%. Summary (1) Take 12.5% away from highs to find bottoms. (2) If no resistance is made at 12.5% then take 16.66% from the high. If the price showed resistanceat12.5%thenfallsbelow,donotput16.66%onasinmostcasesitwillshow no resistance at this level. (13)
(3) Oncethepricefallsbelowtheabovelevels,thenthenextmajorresistanceis25%from the same high. Then just repeat the above rule (2) but with the numbers 25% instead of 12.5% and 33.33% instead of 16.66%. (4) If these levels are broken then do the same with 50%(The most important percentage) and 66.66%. (5) If 66.66% is broken then the next level is 75%. Also, do the same from lows to find future highs but remember that the more you divide 50% and 66.66% by two, the less important the percentages. It is also very easy to put lines all over the place from lows. The ideal signal Say from a major low the price was at 150% after showing no resistance at 100%; from a secondary low you were at 50%, and from a minor low you were at 33.33% after showing no major resistance at 25% then this would be a very strong resistance level. Bad signal The price is at 33.33% after showing resistance at 25%, at 16.66% from another low after showing resistance at 12.5% and at 150% after showing major resistance at 100%. (14)
50% RETRACEMENT (See Figure F) Any long term movements up or down are punctuated by retracement of some description. The most important retracement is 50% of the last move up or down. HOW TO CALCULATE 50% RETRACEMENT LEVELS Find the top and bottom of the last complete movement. For the purpose of this example we will assume that you are trying to determine the 50% retracement level of the long term downward move on the example of Hogg Group. Find the top of the move and the bottom of the move and calculate the 50% level between the two. If the top was 260 and the bottom of the move was 100, then the 50% Retracement level of that move would be 180. THE APPLICATION In most cases the price should find support or resistance (depending on whether you are measuring the retracement up from a downward move or measuring the retracement down from an upward move). Therefore this could be a level to look for a reversal. Alternatively, if the retracement is a downward move and the price broke BELOW the 50% retracement level this is considered bearish. Or if the retracement is an upward move and the price broke above the 50% retracement, this could be considered as bullish. Therefore, if other lines of support/resistance occur at the same point, you could prepare for a possible signal to trade a reversal at that level or you might consider a purchase or sale if the price broke this level either way. FIGURE (F) HIGHESTPOINT THIS IS THE 50% RETRACEMENT (UPWARD) LEVEL OF THIS MAJOR MOVE (DOWWARD) LOWEST POINT (15)
PERCENTAGES RETRACEMENT OF MAJOR MOVES (See Figure G) These levels of resistance are of a similar nature to the Gann Levels (see page 9) but rather than taking the extreme high and low for the calculation, the high and low of any major move can be used. HOW THE LEVELS ARE CALCULATED Firstofallyoumustidentifythetopandbottompricesofthemajormoveyouwishtoanalyse. Divide this range of prices by eighths and thirds. THE APPLICATION These levels can be used to determine possible retracement levels within a major move, either up or down. FIGURE (G) DEVIDE THE RANGE BETWEEN THE HIGH AND THE LOW BY EIGHTHS AND THIRDS. (16)
ANGLES FROM LOWS (See Figure H2) Angles are trend lines or lines of resistance which take both time and price into account. They are drawn from important tops and bottoms and can be applied on long term monthly and weekly graphs and short term daily graphs. An angle taken from a bottom which occurred many years ago can be very relevant to the current price action. If an angle is broken on the upside, then higher prices are indicated. If the angle is broken on the downside, then lower prices are indicated. CONSTRUCTION OF ANGLES Imagine a Balanced Graph. (See Previous page) Figure (H1) The time scale is the horizontal axis and this could be days, weeks or months. The price scale is the vertical axis. This could be Pence, Cents, Dollars, Yen, Francs, or points etc. If you were to draw a line which rises 1 point per week from the lowest point of a bottom, you would be creating a 45 degree angle. For a steeper angle you would draw a line which rises 2 points per week, then 4 points per week, then 8 points per week, etc. For a shallower angle you would draw a line rising 1/2 point per week, which translated onto the computer would be 1 point every 2 weeks, then 1 point every 4 weeks, etc. THE APPLICATION Once an angle is broken on the downside, the price will generally, eventually reach the next angle below. Once an angle is broken on the upside, the price will generally, eventually reach the next angle above. The angles are as follows : 1 point per 1 day, week or month 2 points per 1 day, week or month * if necessary 3 points per day, week or month 4 points per 1 day, week or month * if necessary 6 points per day, week or month 8 points per day, week or month Etc. (17)
FIGURE (H1) 4x1 Angle 8 2x1 Angle 7 6 5 4 POINTS, PENCE, CENTS, DINAR, YEN, ETC. 1x1 Angle 3 2 1x2 Angle 1 1 2 3 4 5 DAYS/WEEKS/MONTHS ETC. (18)
* As a price moves further away from the source of a controlling angle, trading can become more volatile and on occasion it may be necessary to split the angles in order to ascertain where shorter term reactions might occur. On these occasions the 3 by 1,6x1and12x1 etc angles may be used. Angles can also be drawn DOWN from lows to ascertain where later, lower lows or lower highs might occur. YOU WOULD NOT NECESSARILY USE ANGLES ALONE TO GIVE SIGNALS TO BUY OR SELL SHORT - BUT THEY ARE ONE OF THE MOST ACCURATE AND IMPORTANT OF GANN S INVESTMENT TECHNIQUES. You will often see a share track sideways to meet the next angle, rather than falling straight down to it, at which point it can often move fast in either direction after touching the angle it has been travelling to meet. If the angle is broken there are usually lower prices ahead. If ever a long term 1 by 1 angle from an all time low is broken then the share price can be considered to be in serious difficulties - until (and if) the angle is recovered. FIGURE (H2) ANGLES FROM LOWS ON MONTHLY CHART ANGLES FROM LOWS ON WEEKLY CHART ANGLES FROM LOWS ON DAILY CHART (19)
ANGLES FROM HIGHS (See Figure I) The principles, construction and application of angles from highs is exactly the same as those for angles from lows. You simply draw the angles DOWN from highs i.e. MINUS 1 point etc. per day, week or month from the highest point in the peak. You can of course draw angles UP from highs too, but these are used less frequently. FIGURE (I) THIS GRAPH ILLUSTRATES THE EFFECT OF A 1 POINT PER 6 DAYS BEAR ANGLE FROM THE EXTREME HIGH ON BRITISH AIRWAYS. NOTICE THE RESISTANCE CAUSED. THE BREAK OF THIS ANGLE WOULD HAVE BEEN CONSIDERED BULLISH. (20)
ANGLES FROM ZERO (See Figure J) Angles of resistance which are similar to angles from lows. CONSTRUCTION These angles are of the same nature and construction as angles from lows but drawn from Zero. TheseanglesaredrawnusingtheDATEofamajorhighorlowandinparticularfromthedate of the Extreme high or low. Instead of drawing the angle up from the low, the start point of the angle is at Zero - from the same date as the high or low. TheeffectontheIDSsoftwareisthatyouwilloftenseeanglescomingupfrombelowthestart ofthegraph,indeedinsomecaseszeromaybesofardown,thatshallowanglesdrawnfrom there do not appear on the screen. THE APPLICATION Angles from Zero can, in many cases, give indications of where tops and bottoms during majormovesmightoccur.theyareparticularlyhelpfulwhenapriceisinnewlowgroundand there are no previous lower lows from which to draw any supporting angles from. FIGURE (J) ZERO THIS IS THE 1 POINT PER 1 WEEK ANGLE FROM ZERO, FROM THE DATE DATE AT WHICH THE TOP WAS FORMEDOF THE '72 HIGH. (21)
NEW IDEAS FOR GANN ANGLES - GARY STAFFORD TESTED OVER THE LAST TEN YEARS There is nothing new in the following text. The idea that I am trying to impress is that nothing does not work. It may look as though it has not worked, but the price is just telling you what it is most likely to do next. Also, if an angle is not working almost exactly then it is not working at all and should not be used in the future. All the rules below are designed to take away the need for hindsight and allow you to remove angles which you know with a strong degree of accuracy will not work in the future. I believe that this is the most important thing I have discovered. It is very important that lines are removed when they become obsolete. KEEP IN MIND Angles are the most important thing to consider. You are using the correct angles only if they work almost exactly. Knowing the correct angle sequence is important. Never fit things in because it suits what you are trying to see. Angles to use All tops and bottoms work to their own individual set of angles. Angle sets are split up into two main categories, and each main category is then split into two sub-categories. Main category The main category refers to the time period to use. The time period can only be days or weeks in most cases. Only if you find neither of these working should you use monthly angles. In my experience I rarely need to use monthly angles from a particular high or low. As a very general rule you will find that from ALL TIME lows and highs, daily angles work the best. From major highs and lows weekly angles work the best, and from minor tops and bottoms the daily angles are better. These are general guidelines and I will give more accurate rules later. Monthly angles may seem to work because they are very close to daily angles (especially the halfway monthly angles), but you should not use them as over time it can make a great deal of difference and you will not get the next low or high exactly. Sub-category The sub-category is the angle progression to use. There are only two progressions and these are:- FULL ANGLES 1x8, 1x4, 1x2, (1x1), 2x1, 4x1 8x1, 16x1, 32x1, 64x1, 128x1, 256x1, etc. OR (22)
HALF ANGLES 1x12, 1x6, 1x3, 2x3, 3x2, 3x1, 6x1, 12x1, 24x1, 48x1, 96x1, 192x1, 384x1, etc. I never use 10x1, 20x1, etc. or 1x100, 1x200, etc. They will look like they work, especially the multiples of ten on a weekly chart, because all you are doing is drawing daily angles on a weekly chart. e.g. A 5x1 on a weekly chart is a 1x1 daily angle, a 10x1 weekly is a 2x1 daily angle. The multiples of a hundred are the bigger problems as they are slightly out. e.g. 1x100 is very close to the 1x96 and the 1x200 to the 1x192. Over time this can make a great difference. In the vast majority of cases I have found that angles if used correctly will work almost, if not exactly to the price unit. I must stress, angles will work exactly if you are using the correct progression. If the angles are not working exactly then you are probably not using the correct angles. If you have difficulty finding the correct angles, then ignore this top or bottom until hindsight provides the answer. Angles to use You can usually find the correct angles when a low is made in about 1 to 3 weeks. Find out what the first reaction is made on. Is it a weekly or a daily angle? A full angle (1x1, 2x1, 4x1), etc? Or a half angle (2x3, 1x3, 1x6), etc? To start off with this can be difficult because daily full angles are very similar to weekly angles. This gets easier with experience. Further time will resolve this problem. If you have made a mistake then change the angle or you will not get the exact tops and bottoms in the future. A problem When drawing angles on a monthly chart, the computer does not know the exact date in the month on which the high or low was made. It assumes that the high or low was made on the 1st of the month. This makes finding the first reaction difficult on a monthly chart if the low was made near the end of the month. This problem is offset by the hindsight that a monthly affords you. However, always draw angles on the daily or weekly chart wherever possible. Where to draw angles from Always draw angles from where the movement starts from. e.g. From a double top draw the angles from the second top regardless of whether it is lower or not. From triple tops take the third top, etc. If a major high is formed, followed by a secondary top, then draw the angles from the major high until the angles are steeper than the secondary high. Then draw the steeper angles from the secondary top. If the angles from the major high were daily then the angles from the secondary top should also be daily (in most cases, but not all). If full angles from the first high are working then from the secondary high you tend to find that half angles will work. Reverse these rules for bottoms. (23)
What angles are telling you I look to buy on falling to rising angles from lows. I ignore rising to rising angles from lows. I have found that if the daily angles are giving you the lows to buy from, then weekly angles from the same low tend to give you tops, and vice versa. But do not draw both sets of angles as it just confuses things. In other words do not consider that the angles you are drawing are working if they are giving you tops, as they don t tend to give you bottoms. I look to sell or short on rising to falling angles from highs. Again, I ignore falling to falling angles from highs. I look to sell on rising to rising angles from highs. I look to buy on falling to falling angles from lows. I am not saying that rising to rising angles from lows do not give highs, but there are much better ways of finding these highs. Also it helps you to see a much clearer graph because you can remove all the angles that are steeper than the prices. This gives increased confidence in a signal, as you can remove most of the angles. When to change angles If you have found that a low or high is working to daily angles then you can only draw daily angles from this low. Do the same with weekly and monthly angles. However, there are times when you need to change from full angles, eg. (1x1, 2x1, 4x1) etc. To half angles eg. (3x2, 3x1, 6x1) etc, from the same low or high. EXAMPLE. If the share price makes its first reaction on a daily 8x1 angle, with the prices trading up this angle. When the price falls below you would expect the price to reach the next angle of the 4x1. But if, when the price reaches the 4x1 the price shows no change in trend and falls through, then the next major angle will not be the 2x1, but the angle halfway between the 4x1 and the 2x1 - which is the 3x1. From this point onwards you only use half angles below the 3x1. Do exactly the same if a half angle is broken with no change in trend - i.e. go back to full angles. EXAMPLE. If the price showed no change in trend on the above mentioned 3x1 then the next angle to watch would be the 2x1, not the 3x2. With the angle below the 2x1 to use being the 1x1. Fast Moves There are two points at which you would expect fast moves to take place. The first happens if full angles are working and the price stops on a halfway angle exactly. Watch for strength here as this is normally the start of a fast sharp movement. Reverse the rule in a bear market. The second place to watch for fast movements is if a price falls below its angle, but then regains it, without first reaching the next angle below. The market will normally come back to the angle it regained to give you a second chance to buy, and normally this is the start of a fast sharp movement. Again, reverse this rule in a falling market. (24)
THIS PAGE IS AN AIDE-MEMOIRE OF THE CORRECT ANGLES TO USE. Full Angles Half Angles Full Angles Half Angles 1 128 2 by 3 (shallower) or3x2(steeper) 192 2 256 3 384 4 512 6 768 8 1024 12 1536 16 2048 24 3072 32 4096 48 6144 64 8192 96 (25)
NATURAL RESISTANCE LEVELS (See Figure K) These levels are pre-determined levels where a price often meets resistance when moving up, or support when moving down. A Natural Resistance level gives added importance if it is at roughly the same price highlighted using other Gann techniques. Alternatively if there is a major natural resistance level just above the present price, then in most circumstances a purchase would be delayed until the stock has traded above the level for two clear, consecutive days. If there is a Major Resistance Level just beneath the present price then you in most circumstances you would delay trading'short' until the share has traded for at least two clear days below the level. YOU WOULD NOT USUALLY USE NATURAL RESISTANCE LEVELS ALONE. OTHER RULES SHOULD SUPPORT YOUR ACTION. HOW THE RESISTANCE LEVELS ARE CALCULATED The multiples and divisions of the circle (360 degrees) will give you the Natural Resistance levels and 144 is also of special significance. e.g. 360 (One Circle) x 1 = 360 360 x 2 = 720 360 x 3 = 1080 360 x 4 = 1440 etc. 360 (One Circle) 2 = 180 360 3 = 120 & 240 (2/3) 360 4= 90&270 360 8 = 45, 135, 225 & 315 etc. 360 + 180 = 540 (1 and a half circles) 720 + 180 = 900 (2 and a half circles) 1080 + 180 = 1260 (3 and a half circles) etc. A complete list of all the Natural Levels and their calculations follows this section. THE APPLICATION A Major Natural Resistance level could well be the point where the price changes direction. Alternatively a break over a resistance level is a bullish indicator, and break below is bearish. The whole circles are more important than the divisions, and the less the division, the more important the level. i.e. 360 is more important than 180, but 180 is more important than 120 and 240, etc. (26)
Full circles are the strongest i.e. 360, 720, 1080 etc. indicated by 5 stars ***** 1/2 circles are next i.e. 180, 540, etc. indicated by 4 stars **** 1/3 circles next i.e. 120, 240, etc. indicated by 3 stars *** 1/4 circles next i.e. 90, 270, etc. indicated by 2 stars ** 1/8 circles next i.e. 45, 135, etc. indicated by 1 star * 1/16 circles next i.e. 22 1/2, 67 1/2, etc. indicated by no stars The other divisions are 1/5 circle and 1/6 circle. *************************************************************************** The more important levels and their degree of importance in the first 5 circles are as follows : 45 * 405 * 765 * 1125 * 1485 * 60 420 780 1140 1500 72 432 (3x144) 752 1152 (8x144) 1512 90 ** 450 ** 810 ** 1170 ** 1530 ** 120 *** 480 *** 840 *** 1200 *** 1560 *** 135 * 495 * 855 * 1215 * 1575 * 144 (SPECIAL) 504 864 (6x144) 1224 1584 (11x144) 180 **** 540 **** 900 **** 1260 **** 1620 **** 216 576 (4x144) 936 1296 (9x144) 1656 255 * 585 * 945 * 1305 * 1665 * 240 *** 600 *** 960 *** 1320 *** 1680 *** 270 ** 630 ** 990 ** 1350 ** 1710 ** 288 (2x144) 648 1008 (7x144) 1368 1728 (12x144) 300 660 1020 1380 1740 315 * 675 * 1035 1395 * 1755 * 360 ***** 720 ***** 1080 ***** 1440 ***** 1800 ***** (& 5x144) (& 10x144) These are the full circles; half circles; third circles; quarter circles and eighth circles. (27)
The more important levels and their degree of importance in the first circle:- 7 ******* = full circle; 6 ****** = 1/2 circle; 5 ***** = 1/3 circle; 4 **** = 1/4 circle; 3 *** = 1/8 circle; 2 ** = 1/16 circle;1*=1/32 circle; + are 1/5ths & 1/6ths. 11.25 * 22.5 ** 33.75 * 45 *** 56.25 * 60 + 67.5 ** 72 + 78.5 * 90 **** 101.25 * 112.5 ** 120 ***** 123.75 * 135 *** 144 Special 146.25 * 157.5 ** 168.75 * 180 ****** 191.25 * 202.5 ** 213.75 * 216 + 225 *** 236.25 * 240 ***** 247.5 ** 258.75 * 270 **** 281.25 * 288 + (Special 2 x 144) 292.5 ** 300 + 303.75 * 315 *** 326.25 * 337.5 ** 348.75 * 360 ******* (28)
The more important levels under 45:- 5 ***** = 1/8 circle; 4 **** = 1/16 circle; 3 *** = 1/32 circle; 2 ** = 1/64 circle; 1 * 1/128 circle. 2.8 * 5.6 ** 8.4 * 11.25 *** 14 * 16.9 ** 19.7 * 22.5 **** 25.3 * 28.1 ** 30.9 * 33.75 *** 36.6 * 39.4 ** 42.2 * 45 ***** Full circles for use over 2000 to 9000:- 6 circles = 2160 16 circles = 5760 7 circles = 2520 17 circles = 6120 8 circles = 2880 18 circles = 6480 9 circles = 3240 19 circles = 6840 10 circles = 3600 20 circles = 7200 11 circles = 3960 21 circles = 7560 12 circles = 4320 22 circles = 7920 13 circles = 4680 23 circles = 8280 14 circles = 5040 24 circles = 8640 15 circles = 5400 25 circles = 9000 FIGURE (K) 360 315 (7/8) 45 (1/8) 270 (3/4) 90 (1/4) 240 (2/3) 225 (5/8) 120 (1/ 135 3) (3/8) 180 (1/2) (29)
NATURAL RESISTANCE FROM A LEVEL (See Figure L) Please read the notes on Natural Resistance Levels first. Instead of simply applying those numbers to the standard price of a share, add them to the price of a top or bottom. For example:- If an important low has been formed, add the resistance levels such as 360 to that figure. Low formed at 1000 Add 180 = 1180 Add 360 = 1360 etc. A rise in price will often be halted at a price the equivalent of the addition of a major natural resistance level to the lowest point. A fall in price will often be halted at a price which is the equivalent of subtracting a major natural resistance level from the highest point. FIGURE (L) 720 POINT FALL (2 x 360) (30)
SINGLE, DOUBLE OR TRIPLE TOPS OR BOTTOMS (See Figure M) These tops and bottoms can assist in determining where major movements up or down might occur. HOW TO IDENTIFY A SINGLE TOP If the price of the stock has risen to the same price as an Historic Level in the past (that is where an important top has occurred). Then the price could meet resistance and form a single top at that level. HOW TO IDENTIFY A DOUBLE TOP If the price rises to the same price as the single top (without being separated by a higher top) and turns over, it will normally fall faster and further from the second top than the first. HOW TO IDENTIFY A TRIPLE TOP If the price rises for a third time to the same price as the double top (without a higher top in between) and then turns down, it will normally fall further and faster from the triple than it did from either the single or the double top. ****************************** HOW TO IDENTIFY A SINGLE BOTTOM If a price falls to an Historic Level where the price formed an important bottom in the past, then this is termed a single bottom. HOW TO IDENTIFY A DOUBLE BOTTOM Where the price is at the same price level as a previous bottom (without a lower bottom between them), you could find a double bottom forming. If the price rises from there, then it will often rise further and faster than it did from the single bottom. HOW TO IDENTIFY A TRIPLE BOTTOM Where the price is at the same level as a previous double bottom, it could form a triple bottom on that level, from which it will often move up further and faster from the level than it did from the single or double bottom. THE APPLICATION You could prepare for a possible reversal at single, double or triple tops and look for a possible short or sell signal. Alternatively you could prepare for a possible reversal at the single, double or triple bottoms and look for a buy signal. Do not buy stock just underneath a possible single, double or triple top - the safer buy is to wait for the price to go up through the level - or better still - to go up through the level, then to fall back to the level, and then to show strength. (31)
Do not sell a stock short or take out a Put Option just above a single, double or triple bottom level - the safer sell is to wait for it to go down through the level and even better if the price then rallies back to the level before showing weakness. NB. There is a tolerance margin if you are unsure whether the points are close enough to be deemed triple tops and bottoms. Take the middle price of the three. i.e. if the prices are 97, 100 and 98, then 98 is the middle price. If the other prices are within 3% of this mean figure, then it is a triple top or bottom. IMPORTANT - Please refer to the notes on Fourth Attempts at levels. FIGURE (M) 1 2 3 THIS CHART IS AN EXAMPLE OF A TRIPLE TOP. 1 2 3 THIS CHART IS AN EXAMPLE OF A TRIPLE BOTTOM (32)
FOURTH ATTEMPTS AT A LEVEL (See Figure N) Please read notes for Single, Double & Triple tops and bottoms first. HOW TO IDENTIFY A FOURTH ATTEMPT AT A LEVEL If a stock forms a triple top and does not move further and faster down from that level than the previous top, but turns up (usually on or before reaching the 50% retracement of the last move) and makes a fourth attempt at the level - it will nearly always go up through. If a stock forms a triple bottom and does not move up further and faster up from that bottom than the previous bottom, but turns down and makes a fourth attempt at the level (usually on or before reaching the 50% retracement of the last move) - it nearly always goes down through. THE APPLICATION Though you may be very bearish of stock that has formed a triple top, always be aware that it could make a fourth attempt at the level. Be prepared to change your mind and consider buying rather than selling, assuming other rules such as the trend are in your favour. Though you may be very bullish of a stock which has formed a triple bottom, remember that it could turn back down for a fourth attempt at the triple bottom level below. In which case youmustbepreparedtoactquicklyifyouboughtthestockandseeyourstoplossesbroken, or indeed, should the trend be (or turn) in your favour, then you should always be ready to change your mind and consider a short or put option. FIGURE (N) 1 2 3 144 LEVEL 4th attempt (33)
TRADING RANGES (See Figure O) A trading range can often be the build up of strength for a big move either up or down. WHAT IS A TRADING RANGE? When the prices of a stock are moving within a range which has not been broken out of for some time it could be trading range. (The prices seem to move up and down within a small range or channel). THE APPLICATION Do not try to trade the moves within a Trading Range unless it is very wide. It is better to wait until the price has broken out of the range and, if the trend is in your favour, trade in that directioni.e.ifthepricebreaksupoutoftherange,buy,andifitfallsoutbelowtherangethen take out a short position. (Subject to the lack of an impediment to the progress of your trade from other major analysis aspects). FIGURE (O) (34)
TREND INDICATOR LINE (Abbreviation - TIL) Once you have determined a level for possible action from your long term analysis, you need toascertainexactlywhentotakeyourproposedcourseofactioneithertobuyortosellshort. There can be one of two signals for this. (1) The first is to buy or sell when you see two clear, consecutive days where the whole ofthedailyspreadhasgonethroughthelevel. Ifyoursignalistobuyontwodaysabove 180forinstancethentheCOMPLETESPREADOFPRICESforTWOCONSECUTIVE DAYS should be above 180 and you would buy either on the morning of the third day, assuming the price is still clear of the level - or late on the second day, if you are confident that the price will remain clear of the level. (2) The second and more common signal uses the trend indicator line. TREND INDICATOR LINE CONSTRUCTION The trend indicator line is drawn by using the high and low daily traded prices - the daily spread. It is the format to which you join up the prices in order to highlight the minor tops and bottoms where you would:- (a) locate the correct place to buy or short a stock; (b) find the correct place to position a SHORT TERM stop loss; and (c) thereafter to identify the positions to which the short term stop loss should be moved in order to protect profits. Each of the vertical lines below represents the SPREAD of TRADED PRICES in a day. The highest point of the line being the highest price the stock was bought at and the lowest point of the line being the lowest price at which a stock was sold that day. If the price forms an equal or lower high price than the high price of the previous day and a lower low price than the low price of the previous day, the trend indicator line will go from wherever it was positioned on the first day (the high in the example) to the low of the second day. The trend indicator line will continue to be drawn to the lows of the daily spreads UNTIL thepricehasahigherhighpricethanthehighpriceofthepreviousdayandahigherlowprice than the low price of the previous day. On this day, the trend indicator line will be drawn to the high of the daily spread. EXAMPLE (35)