What are Gann angles?
Gann angles are a concept in technical analysis of financial markets, specifically in the stock market. They are named after W. D. Gann, a 20th-century market theorist, who described their use in his 1935 work, The Basis of My Forecasting Method. The legitimacy of Gann's techniques has been questioned, and calculating a Gann angle is equivalent to finding the derivative of a particular line on a chart in a simple way.
Key Facts
- A Gann angle is a straight line on a price chart, giving a fixed relation between time and price.
- The most important angle for Gann was the 1x1 or 45° angle, which represents one unit of price for one unit of time.
- The value of a commodity or stock following this angle will increase by one point per day.
- Other important angles were the 2x1 (moving up two points per day), the 3x1, the 4x1, the 8x1, and the 16x1.
- The corresponding angles for value decrease are just as important.
History
Gann's work on the subject was first introduced in his 1935 course, The Basis of My Forecasting Method. This 33-page course outlined his approach to market analysis, which included the use of Gann angles. The course was likely aimed at professional traders and investors seeking to improve their forecasting abilities.
Gann Angles in Practice
When several of these angles are drawn in a group, they are often called a Gann fan. This is usually drawn from a price bottom or a price top. The Gann angle model contradicts the weakest form of the efficient-market hypothesis, which states that past price movements cannot be used to forecast future price movements.
Criticism and Limitations
The legitimacy of Gann's techniques has been seriously questioned. As with other forms of technical analysis of stock price movements, the Gann angle model is based on the idea that past price movements can be used to forecast future price movements. However, this contradicts the efficient-market hypothesis, which suggests that markets are informationally efficient and that past price movements cannot be used to forecast future price movements.
FAQ
What is the difference between Gann angles and other forms of technical analysis?
Gann angles are a specific type of technical analysis that uses straight lines on a price chart to give a fixed relation between time and price. This is in contrast to other forms of technical analysis, which may use different methods, such as trend analysis or chart patterns.
How do Gann angles relate to the efficient-market hypothesis?
The Gann angle model contradicts the weakest form of the efficient-market hypothesis, which states that past price movements cannot be used to forecast future price movements. However, this does not necessarily mean that Gann angles are not useful for forecasting purposes.
What is the significance of the 45° angle in Gann analysis?
The 45° angle, or 1x1, is the most important angle for Gann and represents one unit of price for one unit of time. This angle is used as a baseline for other angles, which are used to forecast price movements.
Can Gann angles be used for both value increases and decreases?
Yes, the corresponding angles for value decrease are just as important as those for value increase.
What is a Gann fan?
A Gann fan is a group of several Gann angles drawn together. This is usually drawn from a price bottom or a price top and is used to forecast price movements.