Using Gann Trading In Your Day Trading Strategy

William D. Gann, inventor of the gann trading system, specialized in security and commodity markets. He wrote a book describing his ideas and rules of trading in the stock market. Popularly known as Gann Theory, the idea is that there is a mathematical relationship between price and time and specifically certain geometric patterns. According to this theory the relationship can be applied to price charts to forecast market behavior.

How Does Gann Trading Theory Work?

The Gann Trading Theory is based on the fact that specific geometric price patterns and angles have special properties that can be used to predict future prices.

Gann’s Theory suggests that a current cycle can be proven to be in existence by past market performance and the geometric proportions of the cycle as a whole. Gann referred cycles as being 360 degrees or 100% in total, and he divided these cycles into thirds and quarters. E.g. 25% (90*), 33.3% (120*), 50% (180*), 66.6% (240*), 75%(270*), 100%(360*). He considered 50% (180*) and 100% (360*) as the most important points to watch.

Adjacent illustration shows the implications of Gann’s Theory. The Share Price Index (SPI 200) shows a high on Valentine’s Day in 2002. In this illustration, weekly counts have been presented, however daily, weekly, monthly counts or even degrees are also relevant.

One way of qualifying a high like this using Gann theory is to work backwards from this point to see if there are any significant cycles in place identifying previous turning points. This in turn will validate the current high as well as predict future dates to watch.