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William D. Gann Trading Techniques Glossary

GLOSSARY OF TERMS FOR GANN TECHNIQUES


Angle -- A measure in degrees from the horizontal on a price
chart of various key angles (such as 45 degrees) which Gann
Theory considers as support/resistance levels for a price trend.
When an angle line is broken by the trend, the next significant
angle line becomes the new resistance level, and the line just
broken becomes the new support level.

Anniversary dates -- Significant intervals (not necessarily one
year) of days from the dates of major market events.

Cardinal Square -- A square composed of numbers spiraling
outward, starting with the lowest all-time price and increasing
by some fixed increment. Significant angles drawn from the
center of this square (at, for example, 90 and 45 degrees) are
supposed to point out significant support and resistance levels.

Cycle size -- the number of lines in a cardinal square less one,
representing twice the number of "coils" in the spiral.

Step -- the number by which successive numbers increase in the
cardinal square.


Message # 4 From: Gabriele Pietsch Sent on: 02/12/89 11:00 am
Subject: William D. Gann Approach to Trading the Markets

[This is excerpted from William F. Eng's book, "The Technical
Analysis of Stocks, Options and Futures," published by Probus
Publishing, Chicago, Illinois USA. $55 hardcover. Charts and
illustrations are not included in this excerpt. Please see
original documentation for charts.]
--------------------------------------------------------------

GANN TRADING TECHNIQUES

Philosophy and background of Gann's trading system

The Gann system is really a collection of several techniques, all
tied together by the assumption of an underlying and predictable
cyclicity in market phenomena.

Principles

Gann's three main indicators are:

- Gann angles: As a market trends further downward or
upward, the trend-line establishes certain significant angles on
the chart which define resistance and support. Breaking one of
these lines signifies that price will probably trend to the next
significant angle line.

- Anniversary dates: Major market events are seen to recur
on a regular basis, and certain significant time periods are
taken to indicate possible recurrences of these events, so that
the dates of reversals and other phenomena can be pinpointed.

- Cardinal squares: Starting with an issue's all-time low
price, you can derive a series of numbers, each being some
constant increment above the previous number. With the lowest
number in the middle of a square, you may then spiral the series
of numbers out into ever larger squares. The lines of numbers
formed by significant angles from the central low price then will
define future price support and resistance levels.

Setup and Operation

- For Angles: determine trendlines on a price chart and
draw lines at the significant angles from the origination point
of the current trend, watching for price to break these lines.

- For anniversary dates: Keep track of major market events
of interest to you. Then, on a price chart, annotate the
significant anniversary dates of these events in the future.

- For Cardinal squares: With a cardinal square already set
up as described above, check prices against support and resis-
tance levels as predicted by the square.

Trading with the Gann system

Use anniversay dates to predict price reversals and cardinal
squares to predict the level at which a reversal will take place.
Use these two techniques to confirm angle breakouts.

When to use

Has universal application, though the anniversay date technique
is not as useful in markets without perceived cyclicity.

When not to use

Anniversary date and cardinal square techniques should be heeded
only with confirmation from independent indicators.

Combining with other techniques

Supplement with volume-based and use to confirm prediction of
reversal-prediction and trend-indicator techniques.

Philosophy and Background of Gann techniques

Although these techniques do not appear to be logically related,
they have a conceptual relation given them by their inventor,
William D. Gann, a trader during the first half of the twentieth
century.

Gann believed that the geometric representation of price through
time could yield important patterns which would give predictive,
cyclic information.

Based on this assumption, Gann developed several major market--
tracking techniques of diverse natures, but all tied together by
the idea that geometric pattern recognition was the key to a
greater understanding of market phenomena.

Principles of the Gann techniques

I: The cardinal square

A cardinal square is the geometrically visualized incarnation of
the idea that price support-resistance levels occur at predic-
table price intervals.

It is composed of a square array of numbers which are conceived
as spiralling outward in a clockwise direction from the central
number. The central number represents the all-time low price for
the stock or other issue under consideration, and then the
progressive numbers along the spiral grow regularly by an
arbitrary amount known as the step. Twice the total number of
"coils" in the spiral, that is, the number of lines in the square
less the central line, is the "cycle" size.

Important directions along the number array from the center
define important price support and resistance levels -- for
instance, the numbers in perpendicular or horizaontal lines from
the starting central value, or the numbers in a 45-degree
diagonal, etc.



II: Price movement angles

The use of price movement angles is based on the idea that there
are certain natural levels of support and resistance to price
trends, and that these levels are determined by the direction of
the trends themselves. Once a level is broken, price will tend
to stabilize toward the next level. The steeper a resistance
line (that is, the more violent the price move it represents),
the less likely it is to get even steeper, and the more likely
the trend is to gravitate back to a flatter, less violent trend.

The most important angle is the 45-degree angle, that is, the
line drawn on the chart from the beginning of a trend at 45
degrees to the horizontal in whatever direction price is moving.
This is called a 1-to-1 line, because it moves one unit of price
for every unit of time. A 2-to-1 line moves two units of price
for every unit of time, and so represents a 60-degree angle,
while a 1-to-2 line represents a 30-degree line, and so forth.



III: Anniversary dates

These are at even fractions and multiples of a year from impor-
tant market tops and bottoms and can signal either a recurrence
of the same event or another significant point in the same cycle
that included the original event.


SETTING UP THE GANN INDICATORS

I. The Cardinal Square

All you really need for the cardinal square, besides a standard
bar chart following price, is historical information on the total
range of price fluctuation for the issue you are studying amd
some square graph paper. Then decide on a step, or interval
between each successive price.

Place the lowest all-time price in the center square of the sheet
of paper. To the left, place the next price up from the bottom,
then above that price, place the third price, to the right of
that, the fourth price, and so on until you've described a
clockwise square around the original price at the center. Then
jump one square further out and repeat the process, spiraling as
many times around the central square as it takes to get a usable
range.

Once you have completed the square, mark or highlight the rows of
numbers extending horizontally and vertically in all four
directions from the central square. Also mark the rows which
define 45-degree angles to the horizontal and vertical lines.

Now, on the chart where you keep track of price movement, mark
all the price levels which correspond to the numbers in these
significant channels and which appear in the reasonable range of
your current chart. These lines should mark important resis-
tance/support levels.

A cardinal square lends itself well to a simple computerized
spreadsheet, which has the advantage that you can change the
central number and the step at will, with the entire square
recalculating instantaneously, instead of having to re-draw a
square every time you want to change markets or change steps on
the same issue. The spreadsheet approach means that you can
fine-tune your step value experimentally to give the most useful
support-resistance price levels for current markets.


II. Price angles

To use angles, you need to identify the beginning of some trend
which is significant to you.

Now draw a vertical and a horizontal line through the beginning
point. Once you have thus defined the two axes of your angle
chart, bisect the four ninety-degree angles you have created with
two more lines, so that you now have eight 45-degree angles.
Trisect the original 90-degree angles, so that you also have four
60-degree angles and four 30-degree angles. These are the main
lines which you will use to determine support and resistance for
the developing price trend.


III. Anniversary dates

To use anniversary dates you need to do a little historical
research into the market or issue you are trading. Chart past
price on a very wide price graph, leaving plenty of blank space
to the right for future price information. Pinpoint dates on
which significant market events have happened -- breakouts,
tops, and bottoms. Then mark points at dates which are even
multiples and significant fractions of a year into the future
from these significant events. It might help you at this point
to examine the chapter on the use of Fibonnaci series, since this
deals with a similar type of cyclic prediction.


TRADING WITH GANN INDICATORS

Combine the three indicators into a system

Although they may at first seem quite disparate, these indicators
are, as I have mentioned, all related by similar presuppositions
of cyclicity in market phenomena. Since they each therefore give
very different views of essentially the same aspect of the
market's behavior, you can use them to complement, reinforce, and
confirm each other's signals.

There are basically two techniques for combining these indicators
in a trading system, one long-range and the other short-range.


The short-range method: Use angles as the primary indicator

Angles follow the actual movement of price at any given moment,
so they are the most immediate of the three indicators. The
short-range technique, therefore, watches angles for useful
signals and then tries to see if what these signals are telling
us jibes with the cyclic indicators.

The parallel and vertical lines drawn through the beginning point
of a trend give the practical limits of where angles will be
formed, for price is a function of time, and so

1) price changes with time and

2) no price move can take place without some time elapsing.


Point 1) means that an angle will be unstable at the horizontal
or 0-degree position: that is, price cannot continue at the same
level for any length of time.

Point 2) means that it will be impossible for price movement to
ever attain a 90-degree angle -- that is, to change instantan-
eously, without some time elapsing. Now, of course, price trend
will oscillate between rising and falling, so the large-scale
trend must briefly pass through a 0-degree or horizontal angle --
but this static position is fundamentally unstable as well as
uninteresting to the investor in and of itself: what is of
interest is what it tells us about where price is going.

You should be able to see intuitively from this that the stablest
angle for a price trend would be somewhere midway between
straight up and down and the horizontal: that is, at 45 degrees.

Since a trend needs a certain amount of impetus to get going, we
do not automatically look for the price to start a 45-degree
climb once it breaks the horizontal line. Rather, we are more
cautious, and we wait to see if it will pass some intermediate
angle -- that being the 30-degree angle as determined in the
"set-up" section above.

Exactly the inverse rule holds for downward trends.

Once the 30-degree angle has been penetrated, we then look for
the trend to rise/fall to the 45-degree resistance/support line.
If it breaks the 45-degree line significantly, then we expect
another resistance-support line at the 60-degree angle. Such an
angle is very steep and represents rapid price change within a
short amount of time. It is therefore not very probable that the
price will keep up this tendency for long.

The quick way to determe when a trend has ended and one of
another direction has begun is to examine a bar chart for a given

number of days (usually two or three). If, during a downward
tendency, two days of successively higher highs (without lower
lows) occur, then you should now begin plotting an upward trend.
Conversely, if, during an upward trend, two days of successively
lower lows without higher highs occur, then you should switch the
trend to falling.

A Gann Angle chart generates buy signals for long positions when
price reconfirms its penetration of the 45-degree upward-pointing
line (that is, once it crosses, falls below, and recrosses). A
signal to liquidate a long position happens when

1) a 60-degree line gets broken to the downside (take your
profits) or

2) the 30-degree line gets broken to the downside (cut your
losses short)

Sell and buy signals for short positions are the inverse on the
chart's downside of the signals for a long position.

The last paragraphs are the essence of my "Swing Charting"
technique, which I discuss at length in its respective chapter.
That technique is basically an abstraction of Gann's rules for
trading angles.

Improve the angles with Cardinal Squares and Anniversary Dates

You can sharpen the angle-trading technique by also keeping track
of the significant price levels predicted by the Cardinal Square
and anniversary dates of important reversal points. Such further
refinements can be used to confirm position-opening signals and
perhaps as well to cut short a position which otherwise would not
have been indicated by the angles alone.

The long-range method: use angles to confirm the other two


Message # 6 From: William Eng Sent on: 02/12/89 11:10 am
Subject: Bibilographic Materials for More William D. Gann Information

WHERE TO FIND OUT MORE ABOUT GANN'S TECHNIQUES

CompuTrac (telecommunications information service). 1021 9th Street,
New Orleans, Louisiana 70115 USA.

Gann, William D., The Basis of my Forecasting Method for Grains.
Lambert-Gann, Pomeroy, Washington USA. 1976. (reprint of 1935
edition).

Gann, William D., Forecasting Rules for Grain -- Geometric Angles.
Lambert-Gann, Pomeroy, Washington USA. 1976.

Gann, William D., Forty-Five Years in Wall Street. Lambert-Gann,
Pomeroy, Washington USA. 1949.

Gann, William D., How to Make Profits in Commodities. Lambert-Gann,
Pomeroy, Washington USA. 1976. (reprint of 1942 edition).

Gann, William D., Speculation a Profitable Profession (a Course of
Instruction in Grains). Lambert-Gann, Pomeroy, Washington USA.
1976. (reprint of 1955 edition).

Kaufman, Perry J. Commodity Trading Systems and Methods, John Wiley &
Sons, New York, 1978. pp. 200-205.

Lambert-Gann Publishing Company, The W.D. Gann Technical Review (news-
letter)

Murphy, John J., Technical Analysis of the Futures Markets: A
Comprehensive Guide to Trading Methods and Applications. New
York Institute of Finance/Prentice-Hall. 70 Pine Street, New
York, New York 10270. Appendix 3.

Relevance III Software, 888 Lakemont Drive, Nashville, Tennessee 37220
USA. Relevance III's The Trend Series software package
automatically calculates Gann angles and anniversary dates and
juxtaposes them on the same screen with prices.

Rich, Peter. Gann-Trader I. Lambert-Gann. 1983. (software).

************************************************************

Message # 7 From: Gabriele Pietsch Sent on: 07/07/89 2:26 am
Subject: Gann Square of Nine for Daytrading Available


We have developed a computer software program which will
delineate the Gann Square of Nine data for INTRADAY trading.
We have found very good success in calling intraday reversal
points in the S&P 500 futures contracts to within five tics.

For more information about this newest software send me a
message.

P.S. The software is now available at $987 per copy,
non-copy protected. It includes an extensive trading manual
which describes how you can use it to delineate reversal
points for the next day's action.

************************************************************

Message # 8 From: George Limberg Sent on: 07/23/89 11:03 pm
Subject: GANN/ELLIOTT WAVE CONFERENCE 1989

Halliker's, publisher of Gann/Elliott Wave magazine has
announced the formation of the first Gann/Elliott Wave
Conference to be held in Chicago,IL at the Hyatt Regency
O'Hare on October 14-15,1989.

Price to attend is $195 per person and will provide basics
and advanced information for both subjects as well as the
latest books and software.

Some of the scheduled speakers are Bill McLaren, author of
Gann Made Easy, Greg Meadors, president of Genesis Capital
Management, Bryce Gilmore, Australian Gann Trader, Jeanne
Long, Astrology Trader and several others.

For more information or to register, call the magazine at
(417) 882-9797. Credit card orders call (800) 641-4626 ext.
221. Hyatt is offering special room rates and some airline
carriers will be offering a 40% discount. Details will be
released later.