What is Gann Theory and How is It Used in Trading?

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What is Gann's Theory? 

Gann theory was developed by a successful trader William D Gann back in the 1990s. William observed the stock market for years and found its movements interesting. He believed that the market movements were related to geometry and had a set pattern that could help in predicting future prices. This led to the development of Gann's theory. 

Gann Theory Explained

Based on natural geometric shapes and ancient mathematics, Gann's theory, as claimed by many, can predict future movements in the stock market with almost accuracy. In a nutshell, the theory focuses on deeply understanding the graphs of the stock market to find angles and shapes that go and come like a full circle. The focus is on finding the angle that connects the past, present, and future as William believed that ever since the market has existed every movement happens because of the influence of a given angle. 

Once a trader cracks this, he/she can make tremendous profits on the trading account

Gann Angles:

The theory of William D Gann is fundamentally based on angles or indicators. While observing the charts, the theory aligns with the method of following time and price intervals on the charts. However, here the goal is to find characteristics in every angle and pattern formed naturally on the chart. 

Gann's theory argues that the price charts in the stock market rotate from one angle to another. When the angle is broken, this becomes an indicator of an upcoming price fluctuation. Together, these angles are called Gann Fan. 

For an easy understanding of Gann angles, let’s take an example- Take a price chart with a significant top and bottom. If you find prices that are at the trendline, it is an indication of a bull market, and if prices are below then a bear market. The theory argues that a 1*1 trendline indicates resistance pushing the prices to increase and when it’s broken there is a downfall or reversal. 

There is a need for a deep understanding of geometry and mathematics to find these angles with accuracy which at times requires the same skill as any other trading method. 

How Can Gann Theory Help in Trading?

For traders willing to enter the stock market with Gann theory ways, the first approach is to find Gann angles in trading price, time and patterns. While there has been criticism of the theory and its reliability, traders have often found it useful in predicting share prices. Here’s how Gann theory can be helpful- 

  • Price study:

Gann angles are useful in determining price fluctuations. As a trader, the focus should be to find pivot levels on the chart and find Gann angles that can indicate price movements in the stock market.

  • Time study:

Studying time on price charts is a game changer. Once a trader gets hold of finding Gann angles, the data can be used to create a record of fluctuations. This helps in understanding when the prices that are going up can reverse or vice-versa.

  • Pattern study:

Gann angles help in understanding patterns in the stock market. William D Gann based his theory on patterns on the price chart arguing that each pattern has a geometric shape and will keep following the same geometric shape after completing one circle. 

Key takeaways 

Understanding Gann theory demands technical expertise and mathematical knowledge. This article aimed to give you an insight into the theory and how it can be used in stock trading. Here are the key takeaways for you- 

  • Gann theory is based on understanding the natural geometry of price charts to find patterns that can help in predicting price fluctuations.
  • Gann angles are at the core of this theory.
  • Past, present and future movements in the stock market are influenced by a common angle. 
  • Gann theory can help study price, time and patterns in the stock market.
  • Gann theory is useful only when accompanied by a trader’s discretion and practical experiments. 

The Bottom Line

Trading in the stock market, in today’s time, has become accessible to a larger set of people. Free trading accounts, theories and data help beginners to understand the market before making a big investment. Gann theory is one of the many methods used by traders in the market and while it is backed by mathematical calculations, trader’s discretion plays the actual role in trading.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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