Gann Analysis For a Successful Trade

By George Polizogopoulos

One of the pioneers of technical analysis of the stock market was W.D. Gann. In 1908, he created his analysis known as the market time factor. To test his analysis, he opened one account and invested 300 dollars. After only 3 months, he was able to make 25,000 dollars in profit.
After his transactions were verified and the analysis that he used were uncovered, he became an instant celebrity in Wall Street. Soon he was making money with his technical analysis and he begun to attract many followers who became convinced that by using his market time factor analysis they can beat the market and make money out of it.
Actually, his market time factor analysis to predict price movements of stocks where based on three factors which are price, time and range. Added to these will be the premise that the markets are cyclical in nature and geometrical in design.
The Three Pronged Gann Analysis
Using these three factors, Gann was able to develop his system of stock price movement prediction through a three-pronged approach which is as follows;
Price Study - This approach would have to utilize support and resistance lines, and also pivot points and angles.
Time Study- Historically reoccurring dates are considered on these approach through natural and social inter relation.
Pattern Study -This kind of approach would focus on market swings and will utilize trend lines and also reversal patterns.
Constructing Gann Angles
When constructing a Gann Angles for your analysis, bear in mind that these forms of analysis in determining the price movements of stocks are not fixed but are empirical methods. The following will be the process:
1 - Always Determine the Time Units - An empirical process. The usual way to do this is by taking the stock's chart to heart through a furtive study and by carefully noting the distances by which price movements occur. Once you have determined the time unit then you can now proceed to put the angles to test for accuracy of results.
You can either use the intermediate term which is one to three months charts. Others may opt for the long term which is a multi-year charts or short term which is one to seven day charts. For best results, however, it is recommend that the intermediate term charts be used to produce the optimal amount of patterns.
2 - Next, Find the High or Low Where You Will Draw the Gann Lines - Another empirical process and the usual way to do it is to utilize other kinds of technical analysis like the Fibonacci levels or you can use the pivot points. You can also use price swings for this purpose.
3 - You Have Now to Know Which Pattern to Use - Your choice will simply be on the variations in the slope of the line with the numbers provided referring to the number of units that determines the variations of the slope lines.
4 - You Can Now Draw the Patterns - You have to take note of the directions. It can either be downward and to the right from an elevated point, or upward and to the right from a base or low point.
5 - Start your search for repeat past patters from the charts - You have to remember that this analysis for predicting price movements is based on the assumption that markets are cyclical.
Practice with Gann Angles towards a Successful Trade
When you use this system, you have to note that it needs time for you to perfect the approach. Results will depend depending on the skill of the person using this method. It is suggested that constant practice should be made until such time when you will be hitting a good average of success in predicting the price movements When you do actual trading, it is suggested that you combine this method with other technical indicators to increase your chances of success.
George Polizogopoulos is a staff writer for MyShareTrading.com, an information hub for share trading including forex trading, derivatives, options, warrants and CFD's.
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