The stock market is a tug of war between buyers and sellers which means tools like Gann angles can be helpful. The push and pull of bulls and bears can make for messy, hard to trade charts. You inevitably will search for a method to make trading a bit easier.
As a result, technical indicators are used to filter out the noise. Using indicators is all about preference and strategy. In this article, we're going to talk about the Gann angles indicator.
Gann angles are quite simply a tool to help analyze a hectic chart. In fact, Gann angles use a correlation between angle measurement and time. They were initially created and implemented by W.D. Gann a 20th century market theorist.
Although many of his techniques have been largely criticized in the new market, there are many who swear by his work. Some say his early work was essential to laying the foundation for technical analysis and modeling Financial derivatives. You be the judge! What matters is what you think and is it useful to you.
Gann angles have been shown to be useful to us for finding momentum and trends. We particularly like Gann angles for swing trading and longer term trend trading.
Gann angles have 9 specific rays that help tell price action. Each of which correspond with a time segment. As one of the previous angles breaks the next line in the” fan” it will act as support. They are simply just levels of support and resistance.
When prices moves in direct correlation with time the chart should trace on the 45 degree line. A few things to keep in mind are the 1x1 correlates to the 45 degree line and should be your base parameter, the other standard Gann degrees are listed below.
You can use Gann angles on any chart time frame. However, they are more effective on longer-term charts. I like the weekly, daily, monthly, 4 hour and 60 minute time frames.
For example, you want to first find tops and bottoms on either the weekly or monthly chart. The formulas require a price base line this is why you want to use the high or low as your starting point.
When you've done this you can select the tool from your toolbar or draw the angles by hand. If you are drawing them by hand then follow the general angles. If it is through your toolbar then the preset angles should automatically appear.
Open a Thinkorswim account through TD Ameritrade. That way you can use their simulated account to practicing using Gann angles.
This is a simplified example but it shows the overall idea. If you are looking for a bullish play find the low and let the angle paint upwards, if you're going for the bear position then look for the high and let it paint down.
Using your trading platform, (we use thinkorswim) find your "Fibonacci Fan" tool. Here you can draw a standard fib fan. Right click on the fib fan drawing. Now you can edit the fans as seen in the picture below.
I slightly modified my "Gann fans" to my preference and based on further research into Gann. I don't use all the rays or even the standard degrees. Play around with the tool and see if different degrees work for you.
I also recommend drawing Gann fans from various lows to highs, and then highs to lows, and pay attention to where the lines intersect. This can show you important pivot points that can be critical to your entry or exit!
My personal favorite degree is the 45 degree. You will often find great entries around this degree. Also the 14 degree. You'll notice major trend changes around the 14 degree and I use it as a trend change detection. (from bullish to bearish and vice versa.)
For researching Gann, there are a lot of great books to read. One of my favorite books is Observations on W.D. Gann Vol. 2: Price - Time - Volume - Velocity (Volume 2). I found that this author worked hard to simplify Gann strategy and offered his own interpretations of Gann theory.
I feel its important to study the material so you can unlock some of the mystery that surrounds Gann. You will perhaps "crack the code" yourself in a way that helps you become a better swing trader or investor.
Gann warned against over trading. You'll notice that using Gann angles is more of an ebb and flow strategy. You don't want to over trade with using Gann theory, but you should have a plan and a stop loss in place.
Remember, knowledge is power. But applied knowledge is freedom!
If you're challenged with drawing angles or trend lines, you may want to consider checking out TrendSpider. The software will automatically draw trend lines for you based on mathematical algorithms. You can also compare multiple angles on multiple time frames at once..which is arguably the best feature (and my personal favorite!)
TrendSpider makes the trend line angle portion of analysis a breeze. If you've studied Gann angles, you'll probably notice some angles popping out to you on your charts with this tool! Check out our TrendSpider review and try it for free.
Gann angles can be a very effective tool. Learning to use them takes time and practice. Keep in mind that no strategy is absolute. You need to be able to use this tool and adapt it to the moving market.It can be an effective tool in your arsenal of many trading strategies and techniques. It still needs to be combined with other techniques. The number one rule is whatever your trading or investing plan is, stick to it! Deviating from your plan is where you go wrong. Without discpline in trading or investing, you are destined for failure.
You can learn about some other training techniques here at the Bullish Bears so make sure to check out our stock market courses.
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