How to Use the Gann Fan

September 17, 2015Author: Alexey Vergunov

Hello, fellow forex traders! We continue the series of lessons devoted to the Gann trading methodology.

In this lesson we will talk about Gann Angles, which many of you know as the "Gann Fan". In essence, they are one and the same. We will look at how to draw these angles, what their essence is, and most importantly, how we can apply the Gann Fan in practice in our trading.

What Are Gann Angles

Gann angles, or the Gann fan, are one of the standard tools present by default in the Metatrader terminal.
The Gann fan indicator includes a sequence of straight lines drawn at different angles with a base at the reversal point. The resulting picture resembles a fan, which is where the tool gets its name. Each of these lines, when the price approaches it, marks possible support or resistance levels.

William Gann notes that his indicator cannot predict with 100% certainty that the market will change the trend direction. It only shows the moments at which there is the highest probability of a market reversal or consolidation.

The wide use of Gann angles in analytical work on the market is one of the most popular and, at the same time, complex methods of technical analysis. Nevertheless, the skills of structural assessment and forecasting of the currency market dynamics based on William Gann's angle theory are in-demand tools in the inventory of every professional trader. It is worth noting that Gann angles are often confused with trend lines, which is not the case, despite the characteristic similarity.

The key differences between a Gann line and a trend line are that a Gann line is characterized by dynamic properties that allow it to move both along the x-axis (vertical axis) and the y-axis (horizontal axis), which opens up broader functional possibilities for the trader. For example, you can analyze an asset by means of charts, which makes it possible to determine the angles of oscillation of a market instrument and then designate the limits of its dynamics.

The following markers are the key postulates of market dynamics within Gann theory:

Price, time, and the range of market fluctuations;
The geometric structure of the currency market, the analysis of which makes it possible to forecast the factors of the further formation of its dynamics;
The fundamentally cyclical nature of market dynamics.

Gann compared the nature of the market with human nature, by analyzing whose past and present, one can draw a number of necessary conclusions about its future.

How the Gann Fan Is Applied in Practice

And now it is time to explain how Gann angles are applied in practice. The peculiarity of applying Gann theory in practice lies in focusing on two models, classic for his theory, designed to help the trader forecast market movement:

The time study model, which implies recording cyclically repeating dates;
The price range model, which includes support and resistance lines, as well as reversal points.

Since such practices require deep knowledge and experience from the trader, let us note the most essential technical points that need to be remembered first of all.

The trader needs to decide on the models that will be used when analyzing the market with the Gann fan. The most common of them are the 1x1, 1x2, and 2x1 models, each of which implies a certain slope of the lines. However, there are many more such models and, accordingly, angles:

1 x 1 - 45 degrees
1 x 2 - 63.75 degrees
1 x 3 - 71.25 degrees
1 x 4 - 75 degrees
1 x 8 - 82.5 degrees
2 x 1 - 26.25 degrees
4 x 1 - 15 degrees
8 x 1 - 1.5 degrees

There is nothing complicated in these variables: the first of them corresponds to a unit of time, the second to a unit of price, and the formula, accordingly, displays the ratio of price to the time interval.

Special attention should be paid to the 45-degree model, also known as 1x1.

According to Gann, the 1x1 line is a line of the long-term trend: ascending or descending. In this model, the price position above the ascending line indicates a bullish trend, and below the descending line, a bearish trend respectively. The position of the price crossing the line signals an impending trend break. It is important to emphasize that the 1:1 line represents a balance between the price and time ranges. A frequent phenomenon in the market is when the price approaches the line, and time and price become balanced.

A line built within the 2 x 1 ratio tells us that over two units of time, the price changed by one unit. Accordingly, if you work with the 4 x 1 line, then a unit of price becomes proportional to four units of time.

How to Draw Gann Angles on a Chart

Let us try to apply Gann angles (the Gann Fan) in practice. The construction of Gann angles is done from the trend vertex. In this case, it is the lowest point. We draw the 1x1 line at a 45-degree angle. How do you determine a 45-degree angle? Very simply. Under this line, you will immediately begin to get contacts with the trend. It is practically impossible to make a mistake when drawing the angle. All the other lines are pulled in automatically.

Please note! Once drawn, this fan has a large number of touch points and contacts with the trend in the future. In other words, these angles can be used as an additional technical analysis tool in the form of support and resistance levels. We categorically do not recommend trading using only this one tool.

Likewise, Gann theory has a number of similarities with fan lines based on Fibonacci ratios. In light of the market moving upward or downward, the angles are transformed within the existing trend, forming resistance and support levels. As you may already have understood, this tool is not associated with any special trading strategies, however, it can serve as a good additional tool for determining support / resistance levels, as well as the reversal point of trends. One more key is to look for mismatches between time and price. Price will always tend toward the middle line.

Respectfully, Alexey Vergunov TradeLikeaPro.ru

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Hello, fellow forex traders! We continue the series of lessons devoted to the Gann trading methodology.