AT THE CLOSE

# Gann Charting Essentials

by Koos van der Merwe

Here are the basics of a traditional charting technique that can still be implemented in the modern financial markets.

W.D. Gann, who was born in 1878, developed market forecasting methods based on geometry, astrology, and classic mathematics. Gann extensively used angles in the stock market in his work. A Gann angle is a derivative of a specific line on a chart. Each geometrical angle (which is a line extended into space) divides time and price into proportionate parts. The most important angle, which Gann called the 1x1 or the 45-degree angle, represented one unit of price for one unit of time. If you draw a perfect square and then draw a diagonal line from one corner of the square to the other, you have illustrated the concept of the 1x1 angle, which moves up one point per day.

But what system did Gann use to trade the market? It was reported that he became a billionaire trading the market using his various strategies, but is that true? Were his theories truly what made him a billionaire, or was it all a piece of fiction? A friend of mine told me that in 1955 when Gann died, Gann’s widow put the contents of his study up for sale to the highest bidder. My friend went to look, intending to place a bid, but after spending a few hours looking through all the papers and studies, he could not find the secret to Gann’s success. He did not place his bid and left as confused as when he entered.

W.D. Gann was 31 when, in October 1909, in the presence of witnesses, in 25 market days he made 286 transactions in various stocks on both the long and short side of the market. Of these transactions, 264 resulted in profits and 22 in losses. No one is sure which of the many trading techniques Gann developed to achieve what he did, long before computers were devised, but it seems to be a universal truth that the secret to Gann’s success was hard work and the confidence to put the knowledge that he gained into action.

...Continued in the June issue of Technical Analysis of Stocks & Commodities