How to Day Trade Using the Gann Square
The trading concepts used by William Delbert Gann or W.D. Gann as he is fondly called is a name in the financial markets that instantly brings intrigue and mystery, not to forget the fact that Gann's concepts of trading are vast in itself.
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Gann as primarily a trader know for his market forecasting abilities combining a mix of geometry, astrology and ancient math techniques. Gann started trading at the age of 24 and was religious by nature, reflected in some of his work. Gann was also a 33rd degree Freemason, to which some attribute his knowledge of ancient mathematics.
For the most part, Gann's works have been open to interpretation with many of his methods of trading being far from simple. Therefore, to trade based off Gann's methods requires some serious practice and significant effort on the part of the day trader.
Unlike trading with technical indicators where you can buy or sell when some variables are met, with Gann's methods trading is not as simple as it seems, despite the fact that many have attempted to simplify Gann's trading methods, which is debatable. To put some perspective, it is a lot easier for a complete beginner to trading to understand the concepts of trends and trade with moving averages than understanding the entire concept of Gann’s methods and putting it to the test in the markets.
This, besides the point that there are so called many "Gann experts" where each claims to have the right understanding of Gann's methods, makes it even more complex for the average day trader. There are quite a few online calculators that seem to simplify Gann analysis for you, but it is risky to say the least.
One of the reasons that makes Gann's work stand out and also widely followed is the fact that for the most part, Gann's methods of analyzing the markets were nearly accurate, something which most technical indicators would only dream to achieve. It is perhaps for this reason, among other things that makes Gann's trading methods much sought after. Whether the information is imparted and if the correct methods are learned, is a different matter unto itself.
Among the many trading methods known to Gann, the square of nine is quite popular.
What is the Gann Square?
Squares, circles and triangles are three most common geometric shapes that form the basis for most of Gann's works on analyzing the financial markets. Gann's wheels and squares are some of the most common applications and form the cornerstone of Gann's work. However, the wheels and squares hold a lot more significance and offers more than just scratching the surface, which is the case most of the times. Square of nine, Square of 144 and the Hexagon are some of the many works from Gann that are popular.
The Square of nine or Gann Square or Master Chart is also known as the square root calculator and finds it basis from Gann's methods which is squaring price and time. The square of 9 is a spiral of numbers with the initial value "1" starting off at the center. Starting from this central value, the number is increased as we move in a spiral form and in a clockwise direction. According some experts, each cell in Gann’s square of nine represents a point of vibration
The Gann square of nine gets its name because if you look at the above chart again, the number 9 represents the completion of the first square. It is also known as a 9x9 chart, or simple square of 9.
The numbers within the Gann square also follow a certain harmonic pattern in their occurrence. For example, when you take a number, such as 54 from the above square, the value to the next of it (to the right), 29, is derived as follows:
Square root of the number and subtract 2, and re-square the result.
Ex: 54 is the original number
Square root of 54 = 7.348469
7.348469-2 = 5.438469
(5.438469)2 = 29 rounded off
To determine the value to the left, instead of subtracting 2, the number is added. So, we simply add +2 to the square root of 54 which is 7.348469, bringing the value of 9.348469 raised to the power of two to 87.393 or simply 87.
To see this result, simply continue adding the numbers from 81 on the above square to build a new square and you will notice that 87 sits to the left of 54, as mentioned above.
How does the Gann Square work?
The Gann square of nine is simply a tool which calculates time and price besides calculating the square root of numbers including the mid points. When starting out at a specific level, the Gann square of nine helps to look for time and price alignments which is used to forecast prices.
Typically, the time alignment is used for swing trading or for longer periods and is usually discarded when using Gann square of nine for intraday trading where only the support and resistance levels are of importance. Of course, there are many different ways traders interpret the square of nine chart with some going on to be quite complex equations for day trading.
In the Gann Square of nine, the key numbers of importance are as follows:
- Numbers representing 0 or 360 degrees: 2, 11, 28, 53....
- Numbers representing 45 degrees: 3, 13, 31, 57, 91...
- Numbers representing 90 degrees: 4, 15, 34, 61, 96...
- Numbers representing 180 degrees: 6, 19, 40, 69...
The next sets of important numbers are the ones that fall within the Cardinal Cross and the Ordinal Cross. The next picture below shows the Cardinal Cross, represented in the blue line horizontal and vertical lines while the Ordinal cross numbers are the ones represented in yellow cells set at an angle. The numbers that fall in the cells represented by the Cardinal and the ordinal cross are said to be important support and resistance levels with the numbers in the ordinal cross coming in at the second in terms of importance.
In other words, the numbers falling within the cardinal cross are strong resistance and support levels to trade off from, while the numbers falling within the ordinal cross are strong but can be breached nonetheless.
From the above chart, one the most important numbers as we know it occurs every 45 degrees on the Gann square of nine chart. The degrees are said to be associated with time, which is irrelevant especially when you are using the Gann square of nine chart for day trading. The above standard chart is also known as a 1x1 chart. As an example, if price made a high of 54 on the day, then if price retreats, the next support is seen at 29, as it is the next number that is closest to the number across to the square of nine.
Besides the Gann square of nine, drawing a circle connecting the four corners of the squares brings the concept of angles into perspective. The angles, measured by degrees can point to potential support and resistance levels when price is said to be moving within an angle.
The chart below shows the Gann square of nine with the circle plotted around it.
There are many online Gann square of nine calculators that claim to the rest of the hard work. But to put it in a very simple form, to use the Gann chart, simply replace the starting number 1 with a number of your choice and the step value as well (for example in a 1x1 chart, the starting number is 1 which then moves in increments of 1 thereafter). The subsequent numbers that crop up in the ordinal and cardinal number cells are key resistance and support levels.
Based off this information, traders can look to either buying or selling into the nearest support or resistance level. Note that at this point in time, the Gann chart has only revealed the support and resistance levels because time factor hasn’t been added into the equation just as yet which takes it to the next level in forecasting prices and more suited for swing trading and for the long term.
Other ways of trading based off the Gann Square of nine involves, looking at the dates as well to forecast potential price levels and moving the square of nine across the circle at certain angles. However, traders should bear in mind that Gann’s Square of nine is not always 100% accurate and there are times when the Square of nine analyses has often resulted in losing trades as well.
Besides looking at the date factor, Gann’s square of nine also factors in planetary movements and the degree of price movement based on the circle, among other things. When using Gann’s trading methods, the most important factor to bear in mind is that Gann used his methods in forecasting prices. There is a big difference between forecasting prices and trading prices, which traders need to be careful about. For example, one can forecast that the Emini S&P500 will rise to 2100 within a certain period of time. What the forecasting won’t tell you is whether the move to 2100 will be straight, or if price will fall by a significant number of points before rising to 2100 and so on. These might seem insignificant when it comes to forecasting, but they can be very things that can define a successful or a bad trade from a trading perspective.