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OK, maybe you'll say that I researched thousands of charts to find just the right one to use. If that were true, and Gann's rules of retracements are not universally valid, then Chart 10 could not exist.
Chart 10 is a phenomenal example of Gann's 100% Retracement Rule. The chart, from Commodity Trend Service, is of the weekly S&P 500 Index.
The time period is about 3 years - July 1986 to April 1989. The high for that period is 33945, and the low is 14726. Many price reactions occur at Gann's 50%, 63% and 75% price levels.
The historic price collapse in October 1987 - "Black Monday" - can be clearly seen. This occurred almost to the exact date and price tick OF TWO YEARS PRIOR to "Black Monday."
Was Gann right?
If you consider the "life-of-the-commodity" price range for a commodity that's been traded since Gann's time, such as Wheat, it is not hard to imagine having eighth levels, divided by eighth levels, divided by thirds, divided by .. .
Gann held that it was better to make only several excellent trades a year, rather than a number of fair ones. To do this, a yearly price chart would have to be reviewed to determine in which year prices tend to "peak" or "bottom." Then, a monthly chart is used to determine in which month of which year prices will turn. Narrowing turning points even further, weekly and finally daily charts are used. Using only daily charts will cloud ". . . the big picture."
Let's assume for a moment that you have a commercially - available chart, such as Chart 10. You've located a major high and a major low. You notice that prices are starting a bull move from the major low and have counted over 45 days, expecting a reaction to occur at that time.
How do you know if the major high that you've located IS actually a major high, or merely a minor reaction in a larger bear market? Could the 4/8 level of that evolving bull market be only the 1/3 level of a larger bear reaction? And assuming you ARE right about the 4/8 level, what do you do now? (Don't give up now! It get's easier from here.)
Gann's system establishes order out of chaos. Gann angles and the associated geometric angles form a unique system for projecting price and time targets. Books have been written and seminars given on Gann's theories. A complete explanation of Gann's trading theories is well beyond that which is written here. Mastering all of his concepts is difficult, taking years of practice and study, if it can be done at all.
Gann's 50% Retracement Rule, and the rules taught here, are the exception.
But before presenting a clear and effective way to use Gann's 50% Retracement Rule, the difference between Gann Angles and geometric angles must be explained.
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