W.D GannsTheory Explained

There were several legendary stories about W. D.Gann. One of the stories was about his forecastof the wheat market in 1909. According to Gannsfriend William Gilley, One of the most aston-ishing calculations made by Mr. Gann was dur-ing last summer [1909] when he predicted thatSeptember Wheat would sell at $1.20. This meantthat it must touch that figure before the end ofthe month of September. At twelve oclock, Chi-cago time, on September 30th (the last day) theoption was selling below $1.08, and it looked asthough his prediction would not be fulfilled. Mr.Gann said, If it does not touch $1.20 by the closeof the market it will prove that there is some-thing wrong with my whole method ofcalculation. I do not care what the price is now,it must go there. It is common history thatSeptember Wheat surprised the whole countryby selling at $1.20 and no higher in the very lasthour of trading, closing at that figure.

In over 50 years of trading, it was said that W. D.Gann had made US$50 million from themarket. The wealth of that scale compared withthe purchasing power at his time was indeed verysubstantial. Apart from trading, W. D. Gann alsowrote several books on his trading methods.However, he kept his core method veiled andconfined only to a chosen group of people, whovowed not to give the materials out to others.After W. D. Gann passed away in 1955, therewas a long period of time that the name of W.D.Gann was not mentioned in the investmentcommunities.

The name of W. D. Gann regained the marketsattention beginning from late eighties when someof his materials resurfaced and his books werereprinted. Many researchers and analysts tried toreconstruct his methodology. In the Nineties, anarray of schools arose on the basis of hisresearch in time cycle, market geometry andfinancial astrology.

William Dilbert Gann (1878 - 1955)

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Introduction

n recent years, the name of WilliamDilbert Gann has been gaining attentionamong market technicians. It is said that

his market forecasting technique is one of themost complicated technical analytic methods everin the world and that few people could fullyunderstand it. Nevertheless, W. D. Gann hadproven himself to be one of the greatest stockand commodity traders in the last century.

W.D. Gann was not a contemporary man. Hewas an American who traded US stock andfutures markets in early Twentieth Century. Hebecame famous among the investmentcommunities by making several accurate calls.One of his most famous calls was his timing ofthe black Friday in September 1929 when theUS long bull market ended all of a sudden. Theend of the bull market was also the beginning ofthe Great Depression in the western world in1930s. He made his forecast in November 1928,ten months before the collapse.

Basis of W. D. Ganns Techniques

What are the essences of W. D. Ganns theory?

In W.D. Gann own words in an interview, I dis-covered that the law of vibration enabled me toaccurately determine the exact points at whichstocks or commodities should rise and fall withina given time. In his book The Tunnel Thruthe Air published in 1927, which was written inveiled language, he wrote, In making my pre-dictions I use geometry and mathematics, just asthe astronomer does, based on immutable laws.My calculations are based on the cycle theory andon mathematical sequences. History repeats it-self. That is what I have always contended, thatin order to know and predict the future of any-thing you only have to look up what has hap-pened in the past and get a correct base or start-ing point. In explaining his cycle theory, Gannsaid, Time is the great factor that proves allthings. The measurement of time first originatedand based on the earths motion upon its axis.

In a nutshell, W. D. Gann made his market pre-dictions based on the law of vibration, naturalcycles, mathematical sequences and geometrywith reference to the correct base or starting pointin terms of market price and time.

Law of VibrationNowadays, most Gann analysts agree that the lawof vibration refers to time and price ratio analy-sis as applied to a market chart. Gann was one ofthe originators of the famous 50% rule. In hisStock Market Course, he emphasised the impor-tance of the division of three, division of fourand division of eight.

Hong Kongs Hang Seng Index demonstrated aperfect match of Ganns Law of Vibration. In Fig-ure 1, it is shown that the market experiencedmajor supports or resistances at the level of one-eighth (12.5%), one-fourth (25%) and one-half(50%) of the all time high of 18397.57 on 28March 2000, i.e. 16100, 13800 and 9200 ap-proximately.

Natural CycleGann mentioned that natural cycle and math-ematical sequences are the major approaches tomarket forecasting. In his writings, he mentionedtwo major types of cycles: division of the naturalcycle, i.e. a year, and division of the cycle of 360.

From Ganns perspective, the major low of8894.36 (Hang Seng) on 21 September 2001 hasa special meaning. That day was the AutumnsEquinox of the year or half the natural cycle

W.D. GAnn specialist Pak-chungWong explains one of the mostcomplicated technical tools and alsoone of the most powerful.

measured from the beginning of an astrologicalyear on Springs Equinox. Based on this cycletheory, 22 June 2002 will be another importantdate to watch out for trend reversal when the datewill be 90 degrees from the Springs Equinox.

Cycle of 360 is of equal importance to Gann.Using Hong Kongs Hang Seng Index demon-strated in Figure 1 again, it is shown that themajor market low at 8894.36 on 21 September2001 was the 361 trading days after the all timehigh at 18397.57 on 28 August 2000, i.e. a com-pletion of the cycle of 360, and a major trendchange took place.

Way forward, half of the cycle of 360, i.e. 180trading days, would be an important date towatch. This cycle date will fall on 23 June 2002,the same as the natural cycle date mentionedabove. The other major cycle date will be 22 July2002, which is 120 weeks, i.e. one-third of the360 weeks, from the all time high at 18397.57on 28 August 2000.

Figure 1: Daily Chart of Honk Kongs HangSeng Index

Market GeometryGeometry is a study of relationship between X-axis and Y-axis of a two-dimension diagram. Ac-cordingly, Market Geometry is a study of rela-tionship between time-axis and price-axis. Gannhad a famous rule on market geometry, Whentime squares price, a change in trend is immi-nent. This statement means when the time andprice come to the same magnitude or on a one-to-one basis, the market trend might be changed.

Using Singapores Strait Time Index (STI) as anexample in Figure 2, the Gann 1 x 1 line (withtime/price ratio of 1 week for 10 points) frommajor market high and low accurately indicated

the changes in trends, after the balance between time and price was broken. Currently, Singaporemarket is on an medium term uptrend, with major 1 x 1 line support at 1570, where buying oppor-tunity may emerge.

Figure 2: Singapore Straits Times Index and Ganns 1 x 1 LineFor a holistic approachto market forecasting,W. D. Gann emphasisedthe importance of con-vergence that variousmethods confirm witheach other. Ratios, timecycle and Gann angleanalysis should point tothe same conclusion.

The major low of Ma-laysias Kuala LumpurStock Exchange Com-posite Index (KLCI) at547.72 in April 2001can be used as an exam-ple (Figure 3). It was a

retracement supported at the five-eighth (62.5%) of the uptrend from 261.33 of 1998 to 1021.2 of2000. Besides, it was 60 weeks from the major high 1021.2 of 2000, i.e. 60 weeks are one-sixth of a360 weeks cycle. Lastly, it was supported by a 1 x 2 Gann line drawn from the 1998s low at 261.33.

The three approaches confirmed with each other that a change in trend hasbeen imminent.

Figure 3: Gann Analysis on Malaysias KLSE Index

More information about the life of W. D. Gann, his writings and his methods can be found from:http://www.acrotec.com

Mr. Pak-chung Wong is a well- known technical analyst in Hong Kong, who specializes in W.D. Ganntrading and forecasting techniques. He published five popular Chinese TA books, including: W.D. GannsTheory, Fibonacci and Spiral Rhythm of Markets, Day Trading Forex, Principles in Technical Analysis withTechnical Indicators; and Options Trading Strategy. He also developed software for Gann analysis, includingGann Forecaster, a time / price calculator, and the Time Trader Charting Software.

Mr. Wong will be conducting a Gann Seminar in Malaysia on 25 July 2002 and in Singapore on 27July 2002. Further details of the seminar can be obtained on page 25, www.chartpoint.biz or e-mail

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