Gann Theory
Quick Definition
A trading methodology developed by W.D. Gann using geometric angles, time cycles, and price patterns to forecast market movements.
Key Takeaways
- Gann Theory uses geometric angles, time cycles, and price squares to forecast market turning points.
- The 1×1 (45-degree) angle is considered the most important — price above it is bullish, below it is bearish.
- Gann methods are complex and require significant study but offer unique price-time analysis perspectives.
What Is Gann Theory?
Gann Theory encompasses a collection of analytical techniques developed by legendary trader William Delbert Gann in the early 20th century. The theory is based on the premise that markets move in predictable geometric and cyclical patterns governed by time, price, and their relationship. Key components include Gann Angles (lines drawn at specific angles from pivot points, with the 1×1 or 45-degree angle being most significant), Gann Fans (a set of angled lines radiating from a price point), Gann Squares (the Square of Nine and Square of 144 used to find support/resistance), and Time Cycles (using natural time intervals like 30, 60, 90, 120, and 360 calendar days). Gann believed that when time and price "squared" — meaning equal units of time and price converge — significant market turning points occur. While controversial and complex, Gann's methods have maintained a dedicated following among technical traders, particularly his concepts of price-time relationships and geometric market structure.
Gann Theory Example
- 1A Gann 1×1 angle drawn from the March 2020 low acted as dynamic support for 18 months — when price finally broke below it, a significant correction followed, validating the angle's importance.
- 2Using the Square of Nine, a trader identified $142 as a key resistance level for the stock, which had been rallying from $100 — the stock topped at $141.50 before pulling back 12%.
Related Terms
Fibonacci Retracement
A technical tool using horizontal lines at Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%) to identify potential support/resistance levels.
Elliott Wave Theory
A technical analysis theory proposing that market prices unfold in recognizable wave patterns driven by investor psychology, typically consisting of five impulse waves and three corrective waves.
Support and Resistance
Key price levels where buying pressure (support) prevents further decline or selling pressure (resistance) prevents further advance.
Trend Line
A diagonal line drawn across price highs or lows to identify the prevailing trend direction and potential support/resistance.
Moving Average
A calculation that averages a security's price over a specific number of periods, smoothing price data to identify trends.
Relative Strength Index (RSI)
A momentum indicator measuring the speed and magnitude of price changes on a 0-100 scale, used to identify overbought or oversold conditions.
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