(trading)gann applying gann angles to computer charts(brent aston,2000,technical analysis inc)

Stocks & Commodities V17:12 (515-520): Applying Gann Angles To Computer Charts by Brent Aston

Copyright (c) Technical Analysis Inc.

BASIC TECHNIQUES

Applying Gann AnglesTo Computer Charts

Tried and true and far from being discarded, Gann

angles are daily tools for some traders. Heres how

to use two of W.D. Ganns central ideas in todays

computerized environment.

rader William D. Gann becamefamous in the early 20th centuryfor his ability to forecast exactprice targets in the stock andcommodity markets. To arrive

at his forecasts, W.D. Gann used a combination ofmethods, ranging from simple counts and angles tocorrelating natural events. Of course, many securitiesthat exist now did notexist then, and volatilityis very different fromwhat it was in his time.However, the geometricalrelationships that heapplied to data appear towork equally well onmodern data.

Of the work that hepassed along, two ofperhaps the best knownbut often misunderstoodtechniques are Gannangles and the squaringof data on charts. Gannsquares and the squaring

of a chart are totally different things and should not beconfused. Squaring a chart is scaling data into uniformproportions, while Gann squares are squarescontaining a numerical sequence that W.D. Gannused to forecast future swing points. Applying Gannangles is a logical, mathematical method that requiresonly a few drawing tools to reproduce, or they may beapplied to data via a personal computer.

Here are two specific methods of preparing andimplementing Gann techniques, updating the handmethod with the use of software.

GANN BY HANDBefore we examine Gann techniques with the use ofsoftware, lets look at the theories behind them.

FIGURE 1: SOYBEANS. This hand-drawn chart of 1948 soybeans depicts W.D. Ganns basic techniques of drawing trendlines.(Reproduction courtesy of John Wiley & Sons.)

by Brent Aston

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Squaring: That Gann was fascinatedby squares is evident in his work; hesquared price and time, and he used arepeating count of four. To draw Gannangles, it is essential to set up your ownchart the way that Gann did so that it issquared. Take a look at Figure 1.

A perfect square is equal in bothwidth and height, with four equalsides and four right angles. Gannhand-plotted his data onto graph pa-per that consisted of small squarescombined into larger squares con-taining 16 of the smaller squares.That square ratio is simply expressedas 4x4 (that is, 16 squares = 4x4).

The same ratio of width to heightcan be expressed as 1x1 or 1-to-1.When Gann plotted price on hischarts, the data was in a 1-to-1 ratio,indicating one point to the square onthe vertical axis, and one day (or onebar) to the square on the horizontalaxis. This ratio one point to oneday works well with somesecurities, but not all. Some securitiesrequire the use of fractions ordecimals for the points.

Ganns method of squaring tendsto confound many would-be practition-ers. However, squaring charts by handcan be as simple as drawing a line andputting data on a 1-by-1 grid. A 1-by-1 grid works well on the grains, andthat is what I use.

Beginning with one day of data forwheat contracts and a daily range offive points, draw a line on the verticalaxis five squares long. If the closewere one point from the high, it wouldbe one square lower than the top of theline just drawn. The horizontal spacefrom the day before (if any) should beone square wide (Figure 2).

If the next bar has a four-pointrange that closed two points higherthan the previous high and had alow one point lower than the close,it would be plotted in relationshipto the first bar, one square overfor the day, and from one squarebelow the close of yesterday tothree squares above it. The thirdbar plotted on the next day has arange of 3, a close that is onepoint lower than the previous close



and a high that is one point lower thanthe previous high.

Gann angles: Why Gann angles have acorrelation to the market may be explainedby the fact that humans instinctively respondto ratios like halves, fourths, and even thirds,perhaps because the human mind likes tohave a sense of order. Artists certainly know,intellectually and instinctively, that the eyewill follow a line and that we perceive theworld in a series of relationships that themind finds familiar.

Adding Gann angles by hand: On a hand-

proportionally. Heres how to do it usingSuperCharts or TradeStation.

The process is surprisingly similar to squaringcharts by hand. Be aware that when using somesoftware programs, the angles are not alwaysaccurate, depending on your monitor, itsresolution, or your display hardware. Youmay find it useful to get a protractor or a 45-degree angle-drawing tool to check theaccuracy of the line angles. When adding,moving, or configuring angled trendlines,always check the angle by clicking on it tomake sure that it has not been distorted insome way.

Using the wheat contract as an example,drawn chart, only a straight-edge is needed to line up theopposite corners of a squareand draw a 1-to-1 angle. Aprotractor or a variable-angledrafting tool can be used tomeasure other angles. W.D.Gann arrived at the otherangles by dividing a largesquare up into 64 smallersquares (8x8) (Figure 3).Excepting the 3x1 and the1x3 lines, Gann angles weredrawn from either the top orbottom corner of the largesquare to various pointswhere the smaller squaresintersect the larger square.

Specifically, Gann anglelines radiating outward fromthe bottom left-hand cornerwere drawn in a counter-

Thelarge

square

1x8 1x4 1x3 1x2

The 1x1 line45-degreeangle

3rd line 3x

1

2nd line 4x1

1st line 8x1

4th line

2x1

start by selecting the rec-tangle drawing tool. For easeof drawing, begin with roundnumbers like 20, 110, or 330.Put the tool on the selectedlevel and begin drawing arectangle that is 10 pointshigh by 10 days wide. Usefull points, not quarter points,again for ease of drawing.Full points wont work foreverything, but they usuallywork for wheat.

If the dimensions areaccurate, it is not importantwhere the rectangle is drawn.In Figure 4, the rectangle hasbeen drawn on a Septemberwheat chart from 260 to 270in the vertical axis and fromAugust 2 to August 16 onthe horizontal axis (count

FIGURE 2: TRIAD OF BARS. Here are threehand-drawn bars and a 45-degree Gann angle.

FIGURE 3: SQUARE. Gann derived nearly all his angles by drawing them on an 8x8 square,using the intersections of the internal boxes and the external box; 3x1 and 1x3 are deriveddifferently.

clockwise direction from that corner to the point where the topof the small square in the lower right-hand corner intersects thelarger square, resulting in an 8x1 line. Likewise, the next linewas drawn to the point where the second square from thebottom intersects the large square, resulting in a 4x1 line. The3x1 line intersected a point a third of the distance from thebottom to the top of the large square. Then a line was drawn tothe point that was four squares from the bottom, resulting in a2x1 line. Finally, the 1x1 line was drawn to the opposite corner.

Following that series of lines, Gann angle lines radiate fromthe bottom left corner to the same points, beginning with thefirst small square in the upper left-hand corner and proceedingacross the top of the square. These Gann angle lines resulted inthe converse angles of 1x8, 1x4, 1x3, and 1x2.

SQUARING GANN CHARTS WITH A COMPUTERThese days, of course, computers are by far the preferred method forcollecting, plotting, and analyzing data. The Gann process ofsquaring charts is simply a matter of getting the data aligned

only the spaces between bars to reduce confusion). Clicking onthe rectangle between corners makes it possible to drag itaccurately into place.

Now, using a trendline tool, put a 45-degree angle line on thescreen. Line it up with the rectangles corner by clicking on theline and dragging it until it lines up with one corner of therectangle (Figure 5).

Now begins the sometimes frustrating sequence that squaresthe data and concludes the squaring process. Open the formatprice data dialog by right-clicking on the screen to bring up adialog box. Select the scaling tab. Adjust the scale using theuser-defined maximum and minimum boxes. Adjust it for alarger or smaller scale by increasing or decreasing the values inthe boxes until the 45-degree line goes exactly from one cornerof the rectangle to the opposite corner. This involves some trialand error but may be simplified by increasing or decreasing thevalues with round numbers. As the line gets closer to thetargeted corners, however, smaller and smaller numbers arerequired for accuracy.



At this point, note that the rectangle has changed andcontinues to change shape until the rectangle finally becomessquare (Figure 6). The line may have to be moved back to thecorner(s) after each change in scale. It may be advisable to usethe magnifying feature in Windows or magnifying softwaresuch as Loupe for greater accuracy. If SuperCharts magnifyingfeature is used, the scale will change, throwing off the lines andangles. (When youre finished, leave the 45-degree angle lineon the screen to be used later.)

If done correctly, the chart should now be squared as inFigures 6 and 7 and ready for Gann angles. Once charts aresquared, 45-degree angles or any other angles can be accuratelyrepresented in only one way. Lines parallel and perpendicularto Gann angles may also be added to a squared chart.

FIGURE 4: SQUARING CHARTS ON A COMPUTER. Here is a rectangle that has been setup in preparation to be squared.

FIGURE 5: DRAWING A LINE. Have your computer draw a perfect 45-degree line and placeit on the corner of your Gann square. It usually wont go to the opposite corner correctlybecause your chart has yet to be squared.

FIGURE 6: ADJUSTING THE SCALE. Using your softwares scale adjustment (format pricedata in Omega products), adjust the vertical scale until the 45-degree line goes perfectlyfrom one corner of the box to the opposite corner. When it does, the chart is squared.

45 line(1x1)

Gann tool 1x1 lineoverlays hand-placed

1x1 line

DRAWING GANN ANGLESWITH A COMPUTERMany software programs come withvarious Gann angle drawing tools.The Gann fan tool in SuperChartscan be used to turn on all of thevarious angled Gann angle lines atonce or each individually.

Now go back to the chart that youhave just squared, select the Gann



fan tool, and find a major pivot point. Apply the Gann fan to thechart (Figure 8). One or more lines should be seen radiating outfrom that point. Click on the fan to open the dialog box and clickon the line that reads format selected Gann fan, then click onthe properties tab. The Gann fan must be set to the appropriatedirection up or down for your chart. If the price goes upfrom your chosen pivot, the fan must be set to the up/rightdirection; if the price goes down, select down/right. In the time/price Gann lines part of the dialog box, select only the 1x1 lineto start by clearing the checks from all the other Gann angles.

Next, adjust the programs Gann angle. Beginning in thesame dialog box, find the input box next to the points per bar;inside this box is a default number. Increase or decrease thisnumber until the 1x1 Gann fan tool plot is at a 45-degree angle.The angle of the Gann line should change when the number ischanged. If the 45-degree angle trendline is still on the chart,the points per bar number can be adjusted until the lines areparallel (Figure 7). Once the squaring and setting of the pointsper bar are complete, the scale and spacing can be changedwithout affecting the relative position of the fans, although theywill look different because they are effectively being stretchedto a different scale.

Once youve gotten the right number of points per bar, putit on the chart using the text tool. Having the number on handfor reference purposes allows you to add more Gann fansand use it for future reference. Unfortunately, the points-per-bar number rarely works on other contracts of the sameor different securities. However, having the number canspeed up the process of zeroing in on the right angles whenputting Gann angles on other charts of the same security.

Gann fans can be duplicated by using the tool that allowsyou to add a parallel drawing object. After clicking on anyGann fan, you may drag it to any location on the screen. Thecolor 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 thefour possible directions up/right, down/right, up/left, anddown/left.

PLACEMENTGann fans can be started at various points, such as pivot pointsand Gann angle intersections, as shown in Figure 9. Gann anglelines can begin and extend outward to important swing pointswhere trends change direction.

Some experience using Gann angles may reveal new andinteresting relationships in the data. In Figure 9, which is a chartof the September Standard & Poors 500 index contract, a Gannfan angled upward off a previous high helps to define thesupport and resistance (point A) of a subsequent movementinto new highs.

After last years pullback in the autumn, the price stayedwithin the upper 1x4 and 1x3 angles. Strong trends like this canbe a high percentage move in price and time. Although the redrectangle 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 atthe same points that they did when the chart was still squared.

PRACTICAL APPLICATIONSHaving squared a chart and applied Gann angle lines to it, howis it used? W.D. Gann was of the opinion that the 45-degreeangle line was the most important line on the chart. He went onto say that when the 45-degree angle line was broken, the trendhas changed.

Study Figure 10. Almost everything in this chart is keyed offthe angles coming from the peak at the upper left. Each time theprice got near a Gann angle line, it reacted by vibrating aroundthe Gann angles. Often, the price continues to follow these linesuntil market conditions cause the price to break through. Thatis often a sustained move.

FIGURE 7: GANN FAN PARALLEL TO THE 45-DEGREE ANGLE. Once the scale is adjustedand the 45-degree line is in place, the Gann fan can be aligned confidently.

FIGURE 8: SEPTEMBER WHEAT AND GANN FAN. September wheat declines into thesummer but rallies to the Gann fan line as autumn approaches. Once a chart is squared onyour computer, you can put on a Gann fan and turn on or off the angles you want displayed.

Gann Fan

1 x 1 Gann-45 degree angle

10 x 10 square



FIGURE 10: SEPTEMBER WHEAT. Prices move down along a 1x1 angle to point A, where they bounceupward. Subsequently, angles drawn equidistantly after the low is in place identify that reaction as thecenter of the downtrends progress.

FIGURE 9: S&P FUTURES. As the Standard & Poors futures contract rebounds off historical highs,Gann lines from previous pivot points provide support and resistance at a variety of locations.

Once a Gann angle line is crossed, the priceusually moves in the direction of the next closestline. However, when a Gann angle line is rapidlyapproached by the price but not crossed, the pricewill often seem to bounce and move rapidly awayfrom that support or resistance.

The price generally gravitates toward the nearestof intersection points, where the Gann angle linescross. If the volatility is great, this can happenquickly, taking only one or two days.

Not all charts will have a price movement thatstops in the exact center like the wheat chart shownin Figure 10, but clearly this one did (point A). InMay and June 1999, the price was going throughseveral closely spaced Gann angle lines from aboveand below. This is a zone of congestion and slowtrending, but in the wide-open spaces duringFebruary, March, and April, wheat had room torun. Further, after three years of downtrend, thewheat price did not cross into the lower right-handportion of the Gann square. Does this suggestedsupport forecast an upcoming bottom?

Using this example (Figure 10), some Ganntheories can be assessed by examining the resultsof squaring the wheat chart and placing Gannangles on it. Does the price vibrate around theseGann angle lines? Was the 45-degree angleimportant? Did the 45-degree angle define thetrend? It appears so.

Using overbought and oversold indicators, ortrend indicators and any number of other indicatorswith Gann angles has intriguing possibilities. Forexample, when the price has been moving downand comes near an intersection, we might find thatthe relative strength indicator (RSI) or stochasticindicator is oversold and may suggest a divergence.Such verification may improve a traders odds ofsuccess.

CONCLUSIONOnce charts are squared, Gann angles are notsubject to changes in scale. When applied correctly,they are certainly not random, and they showsignificant areas of support and resistance. Further,they can be something of a roadmap, showing where and howprice action will behave in both price and time.

Finally, the process of squaring charts and adding geometricGann angles can be time-consuming, either by hand or bycomputer. While applying Gann theory by computer may bequicker and simpler in some ways, it still takes careful scrutinyto use computerized Gann angles to their greatest advantage.Once done, however, it is best to focus on the basic lines suchas the 1x1 angle and look for price action to track and react toit, no matter if by computer or by hand.

Brent Aston is a private trader.

REFERENCES AND RELATED READINGHartle, Thom [1999]. Gann Swings And Intraday Trading,

Technical Analysis of STOCKS & COMMODITIES, Volume17: October.

Kaufman, P.J. [1998]. The New Commodity Trading SystemsAnd Methods, 3d edition, John Wiley & Sons.

Krausz, Robert [1997]. A W.D. Gann Treasure Discovered,Geometric Traders Institute, 1835 US 1 South 119, Suite352, St. Augustine, FL 32086, 512 443-5751, fax 512 443-7119, Internet http://www.fibonaccitrader.com

Marisch, Gerald [1990]. The W.D. Gann Method Of Trading,Windsor Books.

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(trading)gann applying gann angles to computer charts(brent aston,2000,technical analysis inc)

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