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Trading 101: What Is Gann Analysis?
Gann Analysis uses geometry to help predict price development in the market.
Gann Analysis, named after its creator W. D. Gann, uses geometric techniques to forecast future price movements and identify potential reversal points in financial markets.
Gann was a prominent trader and analyst in the early to mid-20th century who developed various trading strategies. While some of these were based on mathematical concepts, others involved more esoteric areas such as astrology. Nevertheless, some of his core principles are still relevant and widely used today.
Gann indicators use the idea that markets tend to trend up or down along a certain angle, until the trend changes, at which point the angle they move also changes. Some key principles of Gann analysis include:
- Angles and Trendlines: Gann believed that specific angles, such as 45 degrees, represent important trendlines. These angles help identify potential support and resistance levels.
- Time and Price Squares: Gann emphasized the importance of time and price relationships. He used square charts to identify points where the price and time factors align, suggesting potential turning points.
- Gann Fans: Gann fans are drawn from significant price lows or highs, creating diagonal lines that help identify potential areas of support and resistance.
- Cycle Analysis: Gann believed that markets move in repetitive cycles. By analyzing historical price data, traders can identify potential future cycle patterns.
- Geometric Shapes: Gann used geometric shapes, such as circles and squares, to identify potential reversal points on charts.
Gann Angles are not the same as trendlines, which are drawn by connecting tops or bottoms of candles. Gann Angles are intended to give a sense of the general direction of the market, and therefore where price might be after a certain amount of time.
The most popular angles are the 1x1, 2x1, and 1x2, drawn from market tops and bottoms. These may be used to help find support and resistance over the long term.
It's important to note that Gann analysis is considered more subjective and quirky compared to traditional technical analysis methods. In particular, some aspects of Gann analysis (such as those involving astrology), are viewed with skepticism by modern analysts. Nonetheless, indicators like Gann Angles can be found on TradingView and other popular charting sites, and are still used by some of the most successful traders.
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