UNDERSTANDING GANN STUDIES

Predicting the future is impossible, right? Gann discovered the “market time factor,” in 1908 which made him one of the best technical analysts. His financial predictions were perhaps even more profound. In 1929, he predicted that the markets will continue to rally on speculation and hit new highs. He developed a strategy.  To test the strategy, he opened two accounts: one account with \$300 and the other at \$150. Gann made a \$25,000 profit with his \$300 account in just three months; and a \$12,000 profit with his \$150 account in only 30 days. When his results were verified, he became famous on Wall Street as one of the best forecasters of all time.

The base of Gann predictions is based on the following three premises:

• Price, time, and range are the only three factors to consider.
• The markets are cyclical.
• The markets are geometric in design and function.

Based on these three premises, Gann’s strategies revolved around three general areas of prediction:

• Price study: This uses support and resistance lines, pivot points, and angles.
• Time study: This looks at historically reoccurring dates, derived by natural and social means.
• Pattern study: This looks at market swings using trendlines and reversal patterns.

Unlike trading with technical indicators where you can buy or sell when some variables are met, trading with Gann’s methods is not as straightforward. This is because learning the methods takes time. You can’t just apply a few moving averages to the chart and give it a go.

Let us understand how to draw the Gann pattern.

• Determine the time units.
• Determine the high or low from which to draw the Gann lines.
• Determine which pattern to use (Square/ circles, and triangles).
• Draw the patterns.
• Look for repeat patterns further down the chart.

Now tell me, is it possible to predict the future? Gann thought so, and he seemed to have proved it with his widely successful returns.  The system he built is simple to use but difficult to master. At last, like many other tools and indicators, Gann angles are used with other tools to predict price movements.

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