Extended description of William Gann’s theories
Algorithm of drawing and practical use if Gann’s Square of 9 in long-term analysis of the BTCUSD pair. Identification of entry points on a timescale. Application of Gann’s vector to a detailed crypto market analysis.
Today, I’ll go on describing Gann’s studies and his forecasting methods. In particular, I’ll go on explaining how to exploit Gann’s Square of 9. If you haven’t yet read the first introductory part, I strongly suggest you follow the link below and read.
Do read that article from beginning to end. Otherwise, you won’t understand how to configure basics settings and apply this method; and so, you won’t digest anything, written below.
For those, who managed to study the previous article a week ago, I’ll remind the key points:
- We’ve determined the time period to analyze. As one always should start with the long-term forecast, I suggest the daily chart for analysis.
- We’ve configured the Gannzilla Pro software for operating in the D1 timeframe. All screenshots and configuration details are presented in the previous post Unknown Gann Method: Square of 9.
- We’ve determined the period of the studied zone by means of the cycles between the solstices and equinoxes.
- We’ve identified the price extremes during the selected period in the chart history and marked them on the Square of 9 (marked with green).
- We’ve attached the figure to the chart so that its diagonals cross as many as possible of the marked green squares that show the extremes.
- Next, we’ve marked the global critical dates on the chronometer circle, which are indicated by the figure’s angles.
- I’ve marked the future dates in the studied period with yellow, and the dates that already occurred – with red; thus proving that the drawn angles are correct.
- I’ve placed all the dates in the price chart, so that I can identify the most likely dates of possible future reversals and strong momentums.
Now, I aim at marking the price levels in the daily chart according to the Square of 9. Once I find them out, at their meetings with the key dates, I will see the points, which will feature the reversal, a possible start of a new wave or a strong momentum.
To figure these price levels out, I need to define the price “favourite” angle. It is quite easy. I only need to have another look at the Square of 9 that was constructed. The favourite angle is the one that is pointed by the by the median line that crosses the maximum number of extremes (green squares).
You see from the chart above that the most of green squares are equally distributed along three diagonals. As known, there can’t be three favourite angles, so, I need to select a single one.
Gann always paid special attention to the diagonal and cardinal crosses. In the above figure, I marked the cardinal cross with gray squares, it looks like “+”, and the diagonal cross looks like X. It is clear that the upper diagonal too much deviates from these crosses, but the two bottom median lines are quite close to them.
If you zoom in, you’ll see that the upper diagonal is at 1310, and the nearest angle of the cross is at 1350. The lower median line is at 95 degrees and the nearest angle of the cross is at 900. Therefore, the upper diagonal is closer to the cross value, and so, the price favourite angle is at 1310. After you’ve identified the price favourite angle, you need to modify some Gannzilla Pro settings. In the Layout section you indicate the Data type as the Price, not the Date.
Next, you need to enter in the Value box the minimum price for the studied period. Remember, this period for the daily chart we’ve identified according to the periods of solstices and equinoxes. Finally, we’ve marked the zone, covering the period from June 21 till September 23.
It is clear from the chart above that the lowest value in the zone is the low of the spike, recorded at 5755.00 USD. So, I take this value as the starting point.
Next, I need to calculate the price unit (Increment), meaning the price movements between the blocks.
There is the formula to do it:
Therefore, I already know the minimum. Now, I need to find out the maximum.
It is clear from the chart above that the price high in the studied period is at 8506.70 USD
Based on the above formula, the price unit is 30.57 USD.
Next, I need to enter all the calculated data into the Gannzilla settings.
Next, I go back to the Square of 9 and mark at the median, pointing to the favourite angle, the price squares, crossed by the line.
It is clear from the picture above that these levels are 5999, 6488, 7222, 8200, 9392, 10860, 12572, 14523, 16729.
The last value is remarkable as it means that the price won’t go higher than 16729 USD within the studied period. Remember, the timeline is the equinox on 20.03.2019.
To find out the support levels in case of a bearish scenario, you only need to change the increment sign from “plus” to “minus”.
Finally, as you see from the chart above, there are the following levels: 5510, 5021, 4287, 3309, 2117, 650 USD.
Therefore, the price won’t go lower than 650 USD until March 20, 2019. Now, let’s mark the levels in the chart.
As you see in the logarithmic chart above, all the indicated levels quite accurately fit in the extremes of the strong levels in the traded zone, which proves their importance.
Therefore, if you attach these levels to the key dates, figured out in the previous article, you’ll get a kind of grid finally.
Next, to carry out a more detailed forecast, I need to go through the same procedure for the middle-term and short-term periods. I’ll write about it in my next posts. The presented results will be already sufficient for those, who prefer long-term trading.
As I’ve already written above, all horizontal levels are potential support and resistance levels. The points where they meet vertical lines will mark critical points in the chart.
Next, a way to make a further forecast is to apply a Gann fan.
You need to use it in the following way.
In the chart within the studied period, you find the point that is close to the price peak and draw a diagonal line to the next nearest critical point, where the wave finished.
You see in the chart above that there are multiple diagonal lines that connect critical points (I marked them with the green arrow). Next, I connect these points by means of Gann fan.
At first it looks rather confusing.
However, if I remove all unimportant objects from the fan, and leave just the zone from 1 to 8/1, it is more comprehensible.
Finally, you see the zones where the trend can develop. In the chart above, there is one large bearish zone, inside which the local trends were developing. You see that the price left the local bearish trend and went on in the sideways trend, already in the bullish zone. Finally, the price couldn’t consolidate outside the zone of bearish trend, which confirmed the continuous descending movement in the end.
To find out the BTCUSD future price moves, I need to draw a fan from the first key point of the last ongoing wave to the nearest key point of the current ticker’s place in this wave.
An this fan, I need to keep all the angles that are more than 1 (see the example in the chart above).
If the ticker is lower than one in case with the bearish trend, it suggests the market is strongly oversold and should be soon back at 1/1. In case with the bullish trend, it is the same. If the ticker goes higher than 1/1, it is likely to return to the trading zone soon.
The forecast for Gann grid suggests you analyze each cell. The idea is that we don’t know for sure where the price will be heading for; but when it moves from one block to another, we understand the range of the price movements inside a certain cell, and so, we can anticipate the direction of the movement. It is whether the price will go up or down inside this square.
In the above chart, you can see an example of how the price movement inside the cells is indicated. You see that the trend is developing in the zone between the angles of 1/1 and 2/1. All cells, where the price was going down, are marked with downward arrows. The price growth inside a cell is marked with an upward arrow.
If you analyze BTCUSD movements inside the Gann cells, you’ll see that a narrow, stretched upwards, cell suggests a pulse price movement, sharper than in broad cells. Besides, if the ticker moves from one zone to the next one inside the same cell, it is likely to be moving in the breakout direction in the next square. You should always remember that the trend zone of a senior order always dominates.
To see it clearer, let’s study the example of the current situation.
You see in the chart above that the ticker is inside a broad cell in the zone of 1/1-2/1. The current cell is surrounded by 9 other squares. Three of them are behind, and for the obvious reasons, the market won’t get back there. Next, you see that square 5 is at the crossing of two zones. Gray zone of 1/1-2/1 has been already closed, and so, the price can only move to the next trading zone of 2/1 – 3/1. When the price moves through the support or resistance levels without matching to the key dates, it rarely goes on in the same direction. That is why this upward movement here will stop and BTCUSD should go on, moving in the purple zone.
Entering cell 4 suggests moving along the diagonal through the key point. This movement can provide a momentum for a strong bullish correction up to the border of the bearish zone at 5755 USD.
Entering square 3 suggests moving from the gray zone to the purple one, which means the sideways trend inside the new zone, going on up to December 16.
Entering cell 2 suggests moving through the bottom key point, and so, there will be a strong bearish signal of continuous fall down to the next support zone at 2117 USD.
Square 1 suggests the support breakout, not confirmed by the key date. Therefore, it increases the probability of either a false breakout or a flat.
Therefore, cells number 1 and 5 can be referred to as the zone of a false breakout or the trend exhaustion.
Squares number 4 and 2 are the zones of strong pulse movements.
Square 3 is the accumulation zone.
Based on the above, as the price entered the studied cell through zone 1, the Bitcoin will hardly drop down sharply. Therefore, it is unlikely to be moving to square 1 or square 2. It is also unlikely to go to cell 5, as I don’t see strong attempts to buy the BTCUSD out at the current level. So, square 4 has chances for the further development but not more than square 3. I suggest the price be most likely to enter this zone.
If the price hypothetically goes into square 3, the zone of the fan will change. Based on this assumption, the further movement will feature weaker bears, but still in the bearish trend. If the ticker closes the cell in the next zone, the will be a chance for the corrective movement towards 5700 USD.
For a more detailed forecast, I need to draw a smaller grid on a middle-term and short-term scale. Based on Gann’s principles and analyzing trends on different scales, I can suggest the future Bitcoin price movements as accurately as possible. But that will be in the next articles.
Here, I am about to finish my next article, devoted to Delbert William Gann and his studies, which I applied to the BTCUSD pair. I hope this information is interesting and useful for you.
I wish you good luck and good profits!
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Price chart of BTCUSD in real time mode
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