**Happy Friday!** Thought we'd take a minute to review Gann Angles from Clif Droke's *Gann Simplified*, a great little primer on the techniques of technical trader W.D. Gann. Enjoy!

**CHAPTER 10 Gann Angles**

Once the basic concepts of trend line support and resistance have been mastered, we can now proceed to a more advanced concept that allows for greater accuracy in market forecasting using charts. Employing a little-known technique developed by W.D. Gann, a trader can derive maximum leverage in negotiating the markets.

Gann was a master geometer as well as a master market technician. He saw many parallels between the concepts of geometry and the patterns in the market. He developed several ideas based on Greek geometry that he implemented in his trading system, ideas which proved highly accurate and which can be used in almost any market, including cotton. Known as “Gann Angles,” this technique uses several degrees of trend lines to determine the overall position of the market, whether strong or weak.

All of Gann’s techniques require that equal time and price intervals be used on the charts, so that a rise/run of 1 x 1 will always equal a 45 degree angle (1). He believed that the ideal balance between time and price exists when prices rise or fall at a 45 degree angle relative to the time axis. This is also called a 1 x 1 angle (i.e., prices rise on price unit for each time unit) (2).

In his book, Technical Analysis From A to Z, Steven Achelis explains the concept of Gann Angles as follows: “Gann Angles are drawn between a significant bottom and top (or vice versa) at various angles. Deemed the most important by Gann, the 1 x 1 trend line signifies a bull market if prices are above the trend line or a bear market if below. Gann felt that a 1 x 1 trend line provides major support during an uptrend, and when the trend line is broken, it signifies a major reversal in the trend.

Gann identified nine significant angles, with the 1 x 1 being the most important:

1 x 8 = 82.5 degrees

1 x 4 = 75 degrees

1 x 3 = 71.25 degrees

1 x 2 = 63.75 degrees

1 x 1 = 45 degrees

2 x 1 = 26.25 degrees

3 x 1 = 18.75 degrees

4 x 1 = 15 degrees

8 x 1 = 7.5 degrees

“Gann observed that each of the angles can provide support and resistance depending on the trend. For example, during an uptrend the 1 x 1 angle tends to provide major support. A major reversal is signified when prices fall below the 1 x 1 angled trend line. According to Gann, prices should then be expected to fall to the next trend line (i.e., the 2 x 1 angle). In other words, as one angle is penetrated, expect prices to move and consolidate at the next angle.”(3)

Gann Angles are drawn by locating a significant top or bottom and using that as the reference point for drawing the angle line. From this top or bottom, draw a horizontal line outward and use a protractor to measure the various degrees, keeping in mind that the 45 degree line will be most important. Once you have isolated these degrees, use a ruler to draw the trend lines from the reference point outward. It will be noted that smaller degree of trend line, the less likely it is to have any significance. It has been our observation that when prices have broken below a 35 degree trend line, the entire move is in jeopardy of being reversed (even though Gann did not refer to a 35 degree trend line in his writings). The angles between 35 degrees and 45 degrees are always the most important ones, whether in an upward trend or downward trend.

Note the use of Gann Angles in the charts that follow.

Figure 10-1. General Electric (GE)

General Electric’s chart shows four Gann Angle trend lines between June and October of 2000. Note the bullish 2 X 1 angle that was first penetrated in September, then decisively broken in October as were both the 3 X 1 and 4 x1. Each successive Gann Angle trend line was of a lower degree, hence, less bullish than the previous one. After the 4 X 1 angle was broken in October, a new series of downward-sloping Gann Angles developed in December: first the 1 X 2 angle, followed by the 1 X 1, and then the 2 x 1 angle. The steeper the angle in the declining phase, the more bearish the technical position of the market. Note that the 2 x 1 angle was tested in February before the stock plunged once more.

Figure 10-2. Intel (INTC)

Note the three clearly-defined series of Gann Angles in the chart for Intel. After the bullish 1 X 1 angle was broken in April 2000, it gave warning that the stock was losing upside momentum. This was confirmed when the 2 X 1 angle was broken in September. An extremely shallow 4 X 1 angle was broken later in the month, warning of much lower levels ahead.

Gann Angles are helpful tools to use when used in conjunction with the other forms of chart analysis described in Chapters 4 through 7. These angles—especially when a potential change in trend has been signaled—are useful in determining the slope of the incipient trend. The shallower the slope of the trend line, the less likely the new trend is to hold. The steeper the angle, the more likely it is to be the beginning of a significant move. Gann’s extensive views on trading and many of the topics discussed in the prior chapters are summarized in Gann’s trading rules which are included in Chapter 11.

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NOTES

1 Achelis, Steven B., Technical Analysis From A to Z, Irwin Professional Publishers, 1995, pg. 148.

2 Ibid., pg. 148

3 Ibid., pgs. 148-149

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