Introduction to the William Gann theory
A brief historical overview. Algorithm of construction and practical application. Identification of entry points on a timescale.
Today, I’d like to start a new educational block that will be fully devoted to study of the writings of a really distinguished person among traders - William Delbert Gann, who was called the Nostradamus among the participants of financial markets. You can learn more about this in article William Gann – the Finance Nostradamus.
Gann, like all geniuses, was an extraordinary person. In his books, he combined such sciences as geometry, astronomy, astrology, ancient math techniques and religious studies.
Being a deeply religious person (the Bible plays an especially important part in his books), Gann was convinced in scientific value of this book. Gann was also a 33rd degree Freemason, to which some attribute his sacred knowledge of ancient mathematics.
One of the best-known and historically proven Gann’s forecasts was published in Wall Street Journal in 1909. There, Gann wrote that cotton price would be down below 99 cents before the end of the year, and it would be up at 1.45 USD the following spring. Finally, it was fulfilled accurately within a cent.
Gann had spent over 10 years on studying exchange trading. Finally, according to the outstanding results of his predictions that were hardly ever less than 90% accurate, he succeeded in it. However, working as a consultant and selling his forecasts to other traders, he wasn’t willing to share his secrets. Unfortunately, he wrote just about ten books during his life, but didn’t reveal his main key to trading success. Nowadays, William Gann’s writings have become the subject of detailed studies of his followers.
It is acknowledged that the combination of all Gann’s tools is a full-scale and self-sufficient method of high-accuracy forecasting. However, each of the tools, taken separately, performs not so well. Perhaps, that is why the instruments available in any trading terminal, like Gann fan or Gann box, are not that popular. Traders just don’t have the right idea of how to utilize them and apply to trading and finally they give up on these instruments, being disappointed.
Real disciples of Gann spend years to understand all the peculiarities of the Great Master’s methods. I’m not aiming at retelling Gann’s books, but I’d like to describe the basics of his trading concepts, focusing on their practical application and to suggest you key points to study by yourself.
Only this way, each reader will be able to see the new, unknown side of Gann and exploit his writings with most efficiently.
Roughly outlined, Gann’s trading methodology is based on three major concepts:
- Cardinal Square
- Principle of price and time agreement
- Geometrical angles
In this series of articles, devoted to Gann’s methods, I’ll describe in detail all the three of these elements from the point of view of theory and practice. I’ll also describe different variations of combining Gann’s tools with other popular indicators and trading systems.
The first and the most important element of Gann’s trading system is Cardinal Square. So, I recommend everybody, who wants to apply Gann’s trading methods, to start with studying this element.
I recommend reading The Definitive Guide to Forecasting Using W.D. Gann's Square of Nine by Patrick Mikula to learn more about the theory.
I won’t go too deep into theory in this article; rather, I’ll start with the practical application of this tool.
Description of a particular case of Cardinal Square – square of 9
Gann himself drew square of 9 on a sheet of lined paper. In the 21st century, we don’t have to draw it by ourselves. There is a special tool in free access that is called Gannzilla Pro. It is software designed by a Russian programmer, Artem Kalashnikov. You can download and run it free of charge.
So, to exploit any of Gann’s tools, you need to through the following algorithm step by step.
1. Decide on the period to analyze (short-term, middle-term, long-term).
The model is constructed in the following time periods:
- For short-term trading – since the previous day till the following one;
- For middle-term - since the previous week till the following one ;
- For long-term – since the previous period between equinox and solstice till the following one.
The following timeframes are usually used for analysis:
- Short term - М5;
- Middle-term - М30;
- Long-term - D1.
2. Configure Gannzilla settings.
3.Select the points where the price reversed during the chosen period of time.
4. Select the figure and modify its rotation angle so that its diagonals would cross or be as close as possible to the marked points.
5. Identify the pivot points in the studied period in future.
6. Identify the price “Favourite angle”, based on the circle around.
7. Calculate the price unit and set the key levels.
8. Identify the date and the time of the price reversal.
9. Mark everything on the chart.
So, let’s start with step 1. To exploit the trading instrument most efficiently, you need to analyze all periods. If the instrument hasn’t been analyzed in the long-term period, you always start with it. Then, you go on to shorter timeframes.
In this post, I’ll dwell upon long-term analysis. In my next article, I’ll perform a similar analysis in the middle-term and short-term periods, draw final conclusions and suggest trading scenario.
Having selected the period to analyze, you need to make the corresponding configurations of Gannzilla Pro. You move to the left panel and modify the values starting from the top section. There are correct settings for long-term analysis below:
- Visible – enable
- Clockwise – enable
- Size – 10
- View – Square of 9
- Data type – Date
- Today – disable
- Value – default
- Find - default
- Show trading days – for cryptocurrency market – disable, for others - enable
- Format - dd.mm.yy
Visible – enable
Clockwise – enable
Angle - 1800
- Visible – enable
- Clockwise – enable
- Angle - 1800
- Range – Annual (for long-term analysis)
- Visible – disable
The rest parameters that haven’t been outlined should have default values.
Check if the above parameters correspond to the values on your screen.
Switch off the highlight for all objects by right-clicking on the right part of the screen.
If you’ve done everything in the right way, your screen will display the following:
The check point is at the right side of the middle horizontal line (marked with the blue box). At the point, the protractor must always display 0 degrees, and the chronograph – March 21.
Next, according to step 3, you select the points where the price reversed in the chosen period.
As I’ve already mentioned, for long-term forecast, you use the range between the previous period of equinox and solstice and the future period.
To accurately identify the period, I suggest consulting Wikipedia.
As I write this article, it is November, 2018; and so it is the period between the equinox of September 23, 2018 and the solstice of December, 2018 (I highlighted it with green in the table below). Therefore, the previous period is from June 21, 2018 (start of solstice) and to the start of equinox on September 23, 2018 (highlighted with red). I also marked the future period that starts on December 21, 2018 and finishes on March 20, 2019 (highlighted with blue).
You mark these time periods on the price chart for the trading instrument, you analyze.
Next, you open Gannzilla Pro that has been already modified, and in the Data section, in the Value box you enter the first date, marked in the chart, that is 21.06.2018.
After that, you return to the BTCUSD chart and mark the critical points.
They are the local low of 29.06.2018, the local high of 07.07.2018 and other extremes of 13.07.2018; 24.07.2018; 14.08.2018, as well as the extremes of 05.09.2018 and 08.09.2018.
(see the dotted lines in the chart below).
Step 4. Select the figure and correct its rotation angle.
To do it, you mark the points in the chart within the previous period on the square of 9 in Gannzilla Pro with green highlight (see the result below).
Next, you sort the figures, starting from triangle and finishing with decagon (marked with the red arrow). Your objective is to select the figure and the rotation angle so that the diagonals would cross the maximum number of the highlighted green boxes. If there are a few of such figures, you choose the one that has fewer angles.
In the given case it is decagon (see the picture below).
There are global control pivot points at the outer circle – chronograph. In the given case, you pay attention only to those that correspond to the analyzed period till March 20, 2019.
In the zoomed-in picture below, you see that the needed dates are October 15, November 20, December 26, January 31 and March 8.
You mark these dates with thick green lines in the analyzed periods (see the green lines in the chart)
Here, I must note that the first line of October 15 accurately fits the momentum in the chart, it means high accuracy.
If you aren’t convinced with this coincidence, you can look at the previous global points.
They are 14.04, 20.05, 26.06, and 02.08.
Finally, you see in the chart above that all these global levels mark the start of the strong wave with a deviation of just a few days. In general, the deviation within 1 or 2 days is quite acceptable, but the movement occurs much closer.
Step 5. You identify pivot points in the studied period in future. To do it, you move along the diagonals of the selected figure. In the given example, it is decagon. There, you mark the squares that fit in the studied range and are crossed with the diagonal lines. As a decagon has as many as five diagonals, you pay your attention to those, which cross green squares (see the picture below).
For clarity, I marked the squares that are in the future period with the yellow highlight. Those, which have already occurred, are marked with red (here, I primarily interested in the last month).
Next, you mark these key points on the chart (see the chart below).
As it is clear from the chart above, all the five thin red lines are preceding or accurately coincide with the levels, where there were strong momentums. It is the further evidence that the square rotation angle on the chronograph circle is correct.
Next, you mark the points, included in the analyzed period, in future.
These dates are:
01.12.18, 05.12.18, 16.12.18, 25.01.19, 30.01.19, 11.02.19, 25.02.19, 03.03.19
As you see from the chart above, there are several series of pivot points that mark the periods of high volatility, and so, high probability of the future strong movements. All these series are close to the global key levels (green lines).
The first series starts on December 16 and finishes on December 24, and so, we can expect a strong momentum within this period. The next wave starts on January 25 and finishes on January 31. The last group of lines is in the period between February 25 and March 8. You should also pay attention to the single lines on December 01 and 05, and on February 11; they can also indicate a potential strong momentum.
However, these lines are not sufficient to make forecasts. Though, combined with trend indicators and other reversal signals, these levels may serve to confirm the price reversal or a future strong momentum.
To complete this analysis, you need to identify the key levels in the price chart. The needed point is at the meeting place of the price level and the date. It will be the indicator and the target in the trading system.
However, to make this analysis full-scale, so that we can see the complete picture, we need to study the middle-term and the short-term periods. Only then we can see the most accurate trajectory of the future price moves. I’ll describe it next week.
Here, I am about to finish my first 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.
Subject is further described in the following parts:
Part 2 - 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.
Part 3 - Algorithm of drawing and practical use if Gann’s Square of 9 in middle-term and short-term analysis of the BTCUSD pair. Combination of common technical analysis tools with Square of 9.
Part 4 - Algorithm of drawing and practical use of Gann’s Square of 9 in analysis of historical extremes
I wish you good luck and good profits!
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Price chart of BTCUSD in real time mode
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