image
Investing Articles

Price and Time Decision Points the W. D. Gann Way

 W. D. Gann was an incredible chartist and trader back in the early part of the 20th Century. One of the most powerful technical analysis methods he shared in the works he left behind was the application of 'percentage movements'.

Gann believed (and has demonstrated) that important price levels could be determined by dividing ranges by 8 as well as 3. He then pointed out that these divisional price points had different levels of importance.

For example, dividing a range by 8 you would end up with percentage levels of 12.5, 25, 37.5, 50, 62.5, 75 and 87.5. And of course there is 100%, although focus is on the divisions of the complete 100% range.

First level of importance is generally considered the 50% level. After that would be 33.3 and 66.66 (thirds).

These levels could be determined on a market that is correcting (moving back within the price range the divisions are derived from) in order to try and determine price levels that might stop the correction, or they could be added to the end of the price range to determine levels of extension (beyond the range).

For the first example, say price moves up from a bottom at 100 and stops at 200, then starts down again. The range equals 100 points, so the support levels would be 200 (the top of the range) minus 12.5 (187.50), 25 (175), 37.5 (162.5) and so-forth.

For the second example using the same range as the previous example, the extended price levels would be 200 (again the top of the range) plus 12.5 (212.5), 25 (225)...50 (250) and so-forth. And of course you would do the same with the levels calculated from thirds.

These levels act as price decision points, where the technical analyst and trader would then have to further determine if price is likely to make bottom or top at that level. While price often forms bottoms and tops at one of these levels, knowing which one requires more than just noticing a pause in price action at that level.

Thus, W. D. Gann also expressed how these percentage calculations can be applied to TIME. For example, if the range from 100 to 200 took 28 days to complete, that gives a range in TIME as well.

With your range in time, best divided in quarters (25, 50, 75, 100) and thirds (33.33, 66.66) and the result added to the last day of that range, you get points in time where you would look to see if price is also at one of the support or resistance levels you calculated from price.

This is just one of the many valuable methods taught by W. D. Gann that every technical trader should know and put into practice.

Copyright ©ProfitMax Trading Inc. - Futures Trading Market Forecasting

FREE Newsletter!

  • Special Articles.
  • Receive periodic market analysis and forecasts.
  • Get trading lessons and tips.
  • Receive special offers.
SUBSCRIBE FREE TODAY!

Special Product Offer

More Articles