Gann His Rules and His Angles

William D. Gann was a trader of the early 20th century. His abilities for profiting from the stock and commodity markets remain unchallenged. Gann's methods of technical analysis for projecting both price arid time targets are unique. Even today, his methods have yet to be fully duplicated.

Known as "The Master Trader," W. D. Gann was born in 1878, in Lufkin, Texas. Gann netted over \$50,000,000 from the markets during his trading career, averaging a success rate for trades of 80% to 90%. It has been said that Gann could very well have been right ALL the time. Any losses incurred by him were only there by his own design and not because of any faults with his methods.

His successes are legendary. Gann literally converted small accounts into fortunes, increasing their net balances by several hundred percent. There are numerous examples of his trading successes, among which are these:

1908 - a \$130 account increased to \$12,000 in 30 days.

1923 - a \$973 account increased to \$30,000 in 60 days.

1933 - 479 trades were made with 422 being profitable. This is an accuracy of 88% and 4000% profit!

1946 - A 3-month net profit of \$13,000 from starting capital of \$4500 - a 400% rate of return.

The following paragraph appeared in the December 1909 issue of "Ticker" Magazine. It was written by R. D. WyckofF, the former owner and editor of the "Ticker," and describes Gann's proficiency for projecting price targets forward in time:

"One of the most astonishing calculations made by Mr. Gann was during last summer (1909) when he predicted that September Wheat would sell at \$1.20. This meant that it must touch that figure before the end of the month of September. At twelve o'clock, Chicago time, on September 30th (the last day) the option was selling below \$1.08 and it looked as though his prediction would not be fulfilled. Mr. Gann said, 'If it does not touch \$1.20 by the close of the market, it will prove that there is something wrong with my whole method of calculations. I do not care what the price is now, it must go there.' It is common history that September Wheat surprised the whole country by selling at \$1.20 and no higher in the very last hour of trading, closing at that figure." Gann's trading methods are based on personal beliefs of a natural order existing for everything in the universe. Gann was part of a family with strong religious beliefs. As a result, Gann would often use Biblical passages as a basis for not only his life, but his trading methods. A passage often quoted by Gann was this from Ecclesiastes 1:9-10:

"What has been, that will be; what has been done, that will be done. Nothing is new under the sun. Even the thing of which we say, 'See, this is new!' has already existed in the ages that preceded us." This universal order of nature also existed, Gann determined, in the stock and commodity markets. Price movements occurred, not in a random manner, but in a manner that can be pre-determined. The predictable movements of prices result from the influence of mathematical points of force found in nature.

These points of force were felt to cause prices to not only move, but move in a manner that can be anticipated. Future targets for both price and time can be confidently projected by reducing these mathematical points of force to terms of mathematical equations and relationships.

The mathematical equations of Gann are not complex. They result in lines of support and resistance which prices invariably will follow. The intersection of these lines of force, called Gann Lines (See "Gann Angles - Price versus Time") can pinpoint when a price reaction will occur, while others will reflect at what level price reactions will occur.

Charts 1 and 2 illustrate using Gann methods to determine the "when" and "at what price" of market activity.

Chart 1 illustrates the "when" of price reactions. The chart is of the Standard and Poor's (S&P) 500 Index contract for June 1988. The time period is from 10/26/87 to 2/1/88. Keep in mind that these prices occurred after the infamous "Black Monday" of 10/19/87.

Letters "P," "J," "I" and "M" appear above or below some price bars in Chart 1 and others in this book. These letters indicate Primary, Major, Intermediate and Minor Gann Pivot Points, generated by the software. These Gann pivots are included on some charts only as an easy reference to designate certain days. They are not needed for plotting Gann's 50% Retracement Zones. (See Appendix D for a further explanation of Gann Pivot Points.)

Computerized positive and negative lxl, 2x1, and 4x1 Gann Lines have been drawn on Chart 1. The negative Gann Lines appear in parentheses.

Some line intersections have been circled. It is not a coincidence that price-reactions occur within one day on either side of the lines' intersections. The more of a particular type of lines that intersect on a particular day, the stronger the price reaction. These intersections should give you the "when" of price reactions.

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.m PJ Pli TJ f>( IM fli PJ P,l M 1M M M M M M M m PJ M l\l

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.m PJ Pli TJ f>( IM fli PJ P,l M 1M M M M M M M m PJ M l\l

Chart 2 is the same chart as Chart 1. 1/5/89 (the Primary - "P" - Gann Pivot Point day) has been circled. The computerized Gann Lines appearing are those which the software has determined will most affect price activity on that day.

The high of that day is 26560. A computerized 4x1 line ("a"), drawn from the high of25700 on "I" day of12/23/87, intersects 1/5/89 at a price level of26564,only 4 points over the high of 115189.

The 1x4 line ("b"), drawn from the high of26300 on the "M" day of10/30/87, intersects 1/5/89 at a price level of 26641, 81 points over the high of the day.

It is not a coincidence that the high of 1/5/89 falls between 26564 ("a" intersection with 1/5/89) and 26641 ("b" intersection with 1/5/89).

These are greatly over-simplified illustrations of the Gann-Line theory. For our purposes, though, Charts 1 and 2 show that combinations of multiple Gann Lines can accurately project price turning points for any given day.

Even after a financial shock such as "Black Monday," the inter-relationships and effects of Gann Lines still hold true.

Gann Lines result from mathematical expressions that have two elements.

These two elements are PRICE and TIME.