It is fair to say that some modes of technical analysis of the stockmarkets move beyond the purely mathematical and one of these is Gann analysis which has many devotees around the world despite its more esoteric appeal.
The body of work that has built up around WD Gann began with his own series of predictions in the early part of the 20th century which were uncannily accurate, and he soon built up a big following as one of the first real technical analysts. His analysis combined price and time studies to make what he described as the market time factor, and he believed that all market movements could be defined by a series of mathematical laws and the workings of the natural world borsa trading .
The basics of Gann analysis
There were three starting rules:
1 Price, time and range are the only three factors to consider.
2 The markets are cyclical in nature.
3 The markets are geometric in design and in function.
Gann had three areas of prediction: His price studies included support and resistance lines, pivot points and angles, many of which are standard analytical techniques in modern day technical analysis. His time studies sought out historically reoccurring dates, and these were derived by natural and social means, which was more subjective. He also studied patterns to seek about potential market swings using trendlines and reversal patterns.
Price, time and the construction of Gann Angles
What Gann sought to do was to set out a series of geometric angles that could be used as rising support and resistance levels based on natural laws, and these are now known to analysts as speed lines.
Much of his work was empirical, which meant he developed the analysis based on experimentation and observation, but he was committed to the central 1*1 price against time line measured as a 45 degree line on a chart.
The second point was where to start the lines, and Gann discovered that major highs or lows made excellent starting points. He also then moved onto horizontal support and resistance levels using what he called “vibrations” or “price swings”, and again his evidence was empirical in nature using mathematical theories such as Fibonacci retracements (which we have discussed elsewhere).
Once the relevant price and time points were observed on a chart, Gann then drew in (modern software systems do this automatically) several important lines, of which the two most common patterns were the 1X1 line, the 1X2 line (which is a more gentle rate of ascent, and the 2X1 line (a steeper rate of ascent).