# GANN ANALYSIS:

CALCULATING PRICE AND TIME OBJECTIVES

##
Constance Brown, CMT

An Excerpt from chapter 9, Technical Analysis for the Trading
Professional, 2nd Edition

- Natural Laws of Vibration
- Harmonic Ratios
- An example Gann Time Study
- Why Cycle Periods Expand and Contract
- The mathematical relationship between Gann Fan and Gann Squares
- How To Use A Gann Wheel
- Create Your Own Gann Wheel in Excel

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**Copyright ©
2012 by Constance Brown. All rights reserved.**

McGraw-Hill Companies.

Printed in the United States of America. Except as permitted under the
United States Copyright Ac of 1976t, no part of this publication may be reproduced
or distributed in any form or by any means, or stored in a database or retrieval
system, without prior written permission of the Publisher.

Library of Congress Cataloging-in-Publication
Data:

Brown, Constance M.

Technical Analysis for the Trading Professional:

Strategies and Technigues for
Today's Turbulent Global Financial Markets, 2nd Edition

##

Chapter 9: Gann Analysis: Calculating Price and Time

(numerous book paragraphs removed
in all sections so that one example only or brief introductions are posted online)

## Natural Laws of Vibration

William Delbert Gann was a master of cycle analysis. He used several different
approaches with the aim of finding confluence between price, time, and diagonal
analysis. One of Gann's approaches to identifying when a trader has permission
to enter or exit a market is to use what are known as the "laws of
vibration" or "natural laws." These are two very antiquated
terms which refer to celestial motion. Gann's prestige grew in 1909 when
Richard D. Wyckoff interviewed him for The Ticker and
Investment Digest. Wyckoff further witnessed a trading period with an
impressive win-to-loss ratio. Keep in mind that the year of the interview was
1909. If you want to know what makes a trader, study the materials you think
brought them into their era of success. I made the mistake of beginning
with modern resources, when books written in that era would have been easier
to use as the language was the same as that used by Gann.

As an example, books of the late 1800s use the term natural law freely to describe
the “stellar vibrations” of our solar system. It is a natural law,
which we now call “diurnal motion,” where the Earth’s rotation
on its axis has an influence on us to move from a cycle of conscious alertness
to a state of sleep and back again every 24 hours. It is the natural law of
celestial motion, first recognized by Copernicus, where the Earth’s
revolution around the sun has a significant effect on the timing of when life
springs back to life, blooms, matures, withers, and decays in a rest phase.
These two cycles of celestial motion we accept easily, but the third is more
difficult, the precision of the equinox as a timing mechanism within the
markets.

But the real value of Gann Time Analysis is that it allows us to see
the natural
expansion and contraction of beats within a cycle as they abide the natural Laws of
Vibration.

Time Cycles: Examples of Gann 's Analysis on the Vertical Axis

A Gann cycle is an astronomical formula mapped vertically on the time-axis. As
example, we use a formula that will map every occurrence when the Sun and Neptune
appear to be very close to one another as seen from Earth. We refer to the four
degrees criteria as the period the planets are in orb. A zero degree alignment is
rare. Therefore we accept plus or minus four degrees in orb is close enough to
say in this example that the Sun is conjunct with Neptune. Had the Sun been 180
degrees from Neptune (plus or minus four) they would be in opposition to one
another. The opposition aspect would have produced a different cycle beat.

Why look at the Sun and Neptune rather than some other planets in combination when
you study Corn? An astrologer would answer, "Sun is light and Neptune is water.
" But an astronomy wants to study physics and statistical correlation. Sun and
Neptune create a meaningful cycle in this market. Well in fact every planet, every
angle, every multiple combination, individual speed, acceleration, position,
direction, or mathematical orbit measurement has been evaluated. Speed? Did you
know the motion of the Sun along the ecliptic is not uniform? The seasons are of
different lengths of time because the Sun moves faster in December and January,
and more slowly in June and July. It is only the perceptions from Earth when
Earth is considered to be the center of our Solar System. This view is called
geocentric. The Earth's tilt on its axis creates several mathematical
issues that must be considered. In fact there are also small differences
in the length of seasons from year to year due to perturbations of our
orbit by other planets and our motion relative to the barycenter of the
Earth-Moon system.

## Figure 9.6 Gann Time Analysis Cycle -
Natural Laws of Vibration Applied - Corn Futures - 2-week Bar Chart

Source: Aerodynamic Investments
Inc., Software: Market Analyst

Gann gives time cycles in his books, but he does not give you charts to make it easy to
see his references visually. It is not until you create the chart that it is clear Gann
did not reference the start or end of significant price swings. This is very confusing
at first, but Gann was teaching us what cycles he used for specific markets.

Figure 9.6 is a two-week chart of Corn prices.It is a time cycle that marks when a
planet enters the ninetieth degree or cusp of Cancer. With the cycle beats marked on the
chart you can easily see the expansion and contraction character of the downbeats on the
vertical lines on the bottom of the price window. The expansion and contraction phases
are also rhythmical.

Alignments with more than two planets will magnify the task rapidly. The asteroid
Ceres is important. But you will read in Fibonacci Analysis that Ceres is needed to
show how the planets all add up to a mean distance of 1.618 when measured in
astronomical units from Mercury as the center. This mathematical relationship becomes
more interesting when you know that Mercury had great significance in ancient Egypt.
Gann travelled to Egypt to further his studies.

Online is only one astrological cycle Gann used as a demonstration. Other cycles you will want to learn
about, other than ingress movement and aspect relationships, are solar and lunar eclipses, moon phases,
and retrograde motion to name a few more.

## Example of Gann's Analysis on the Diagonal Axis;
Gann Planetary Lines

(paragraphs and charts removed)

How do you plot a planet's orbital movement on a chart? It is very easy to do; however, believing
the market has any relationship to a channel line derived from a planet is a tougher challenge at first to
accept. If you are standing in the middle of the New York Stock Exchange on market close, and take a
snapshot to freeze the location of all the planets at that moment, each planet will have a position at a
specified degree within a circle. Within the 360 degrees, let's say to view Venus you need to turn
47 degrees. Now add 360 to 47 until the value enters the range of prices on the chart. That works for
the DJIA for the moment, but Figure 9.8 is trading in a range where 360 cannot be added to 47 without
exceeding the price range of Corn. Therefore, factors are involved.

(the discussion about Gann factors can be found in the book.)

## Examples of Gann's Analysis on the Diagonal
Axis: Gann Fan Lines and Gann Squares

Squaring price (the horizontal axis) and time (the vertical axis) is often misunderstood. This is simply a
box whose sides are equal. I will not be addressing the issue of calendar versus trading day differences here.
Just keep it simple to develop the concept. One unit of time is equal to one unit of price. The difficulty
follows for people because they do not know or have forgotten the simple math associated with a box.

## Figure 9.9 Gann Squares - Japan
Nikkei 225 Index- monthly

Source: Aerodynamic Investments
Inc., Market Analyst Software

In Figure 9.9 there is a monthly chart of the Nikkei 225 Index. In the same chart are four boxes. Box
number one was created as the square of 90. If I smoothed out the corners and had each point along the box an
equal distance from the center, what shape would I have drawn? A circle. A circle has 360 degrees. For the box
to have sides of equal length and still be connected as a solid, the four corners must be equal to 90 to be
right-angled. Four times 90 equals 360 degrees. All right, try this one. Turn the circle with 360 degrees into
a triangle with sides of equal length. How many sides are there in a triangle? Three. How many degrees will
be between two sides of the triangle that connect at the corner? The answer is 120 degrees. An equilateral
triangle has three sides of equal length. Therefore 360 divided by three equals 120. I do not see the
difficulty here, but this causes many people a problem.

Now study box 1 in Figure 9.9. Why does it look less than per- fect? Are the lengths of the sides for height and
length really equal? Yes. It will often look less than perfect because of the pixel array of a computer screen.
Computers and how we elect to scale our x and y axes will affect how the box looks to us.

Next, if you have one box and multiply it by two, how many boxes will you create across the Nikkei chart? Did
you think the answer was two? Most people do. You have forgotten this is a box. If I multiply a box by two,
the one side (height) doubles for the dimension of height and the box length will be twice as long also.
Therefore I get four boxes. Multiply four boxes by 2 and the screen would display 16.

Box 1 has a cross in it that connects the corners. If my box is truly a box with equal lengths in height
and width, when I connect the corners with lines they will cross dead center in the middle of a box. What
is angle abc that defines the top left corner of box 1 that lies between lines ab and bc? It has to be an
angle of 45 degrees as the line passes from corner to corner. Therefore the right-angled corner is divided
equally by two.

Notice a line connecting the corners of box 1 will pass through the corners of box 4. Every line of 45
degrees will connect corners of other outer boxes. It becomes extremely important that you recognize this about
the square of 90, or any square of 90 that is a multiple of two. Therefore the square of 45, 90, 180 etc.
will contain an exact 45-degree angle.

Here is a new question for you to consider. The range of the Nikkei does not accommodate the use of one unit
for the price and time relationships. This chart has an old price high still visible near 21,000. I would need
21,000 days to 21,000 price units and a very, very big wall to create the chart—not practical. So how do you
fit such a price scale into a chart and keep the geometric proportions correct? That is one of the big
questions that cannot be answered with a sound-bite quick answer. There is a very precise way to determine
the correct factor to use. In addition, it is not experimental as a Gann software vendor believes. As soon
as you start messing with the proportional relationships between width and length, such as thinking it
might be better if a Fibonacci ratio were used, the analysis has turned into an experiment that is no
longer Gann analysis. If your sources advise you Gann analysis is only about experimentation, they do not
understand how the dimensions interlock between the horizontal, vertical, and diagonal.

## Figure 9.10 Gann Fan Angles Relative to Gann Squares -
Nikkei 225 Index

Source: Aerodynamic Investments
Inc., Market Analyst Software

Consider Figure 9.10 where the monthly Nikkei data is displayed with four Gann Squares as described in Figure
9.9. The difference is the addition of Gann Fan lines that subdivide the right-angle corner on the bottom
left. A Gann Fan subdivides a right-angled triangle into very specific angles. If you create a line from the
corner with a growth ratio of 1:1, the line will move one unit up and one unit to the right, equally
dividing the right-angle corner of 90 degrees. It becomes a 1 × 1 line that is a 45-degree line through the
chart.

A Gann Fan is a series of lines subdividing 90 degrees. Each line will dissect the right angle at the
following degrees: 3.75, 7.5, 15, 26.25, 45, 63.75, and then 82.5 and 86.26. The thirds created from
3 × 1 and 1 × 3 will be on degrees of 18.75 and 71.25.

The ratios needed to create these lines precisely from price and time are 16 × 1, 8 × 1, 4 × 1, 2 × 1, 1 × 1
(the 45-degree angle line),
then 1 × 2, 1 × 4, 1 × 8, and 1 × 16. In each, the first value is how
many units along the x axis you move before moving up the y axis scale. So 1 × 16 is over one unit and up 16
units.

We mention the use of 1 × 3 and 3 × 1 separately because these are thirds and they do not multiply by factors
of two and do not retain an important relationship about to be demonstrated. If you have software with a
tool that looks like Gann Fan lines, they must be these specific angles. If not, they are simply speed
lines used to observe acceleration and the slope of data swings.

Figure 9.10 contains circles so you can see more easily the Gann Fan lines that intersect box corners and the
diagonal crosses. These relationships between Gann Fan lines and box proportions are important. These
relationships also relate to the Gann Wheel that defines the horizontal axis. When a software vendor has an
error in any one of these three tools, the Gann Square, Gann Fan, or Gann Wheel, it will be recognized by the
advanced Gann practitioner because the factors used will no longer be correct that bind these proportional
attributes.

If I multiply my Gann Fans drawn in Figure 9.10 by two, where would the 45-degree line that is in the
middle of the chart be drawn next? It would shift and be drawn exactly on top of the line above the 1 × 1 in
Figure 9.10 and become the new 1 × 1 line. Why? It is a line and not a box. So the 1 × 2 moves to 1 × 4 and
the 1 × 4 moves to 1 × 8, etc. That is why the 1 × 3 and 3 × 1 are mentioned separately. But Gann used to
subdivide each box into thirds. How many boxes form inside one box that is divided by three? Nine. The 1 × 3
and 3 × 1 will intersect the corners and intersecting crosses within the nine boxes of a single larger box
exactly.

I have not made a comment about the highest and lowest Gann Fan lines that do not connect to any corner or
middle intersection in Figure 9.10. They will bisect corners or intersecting crosses when additional boxes of
equal size are added to a larger chart in width and height. The line circled in Figure 9.10 that bisects the
middle of the top left box is heading toward a corner when you zoom out and find the boxes continue above and to
the right. When you read Gann’s courses and he describes how he draws Gann Fan lines, it can be confusing
because he calls them moving averages and not trend lines. When you delve more deeply into Gann you will
realize you are working with a harmonic cycle that is better named a moving average.

I have just demonstrated some of the attributes of the square of 90. We use other squares. For example,
the square of 144 will have a diamond-shaped appearance and will be of interest to soybean traders. How do
you find the 45-degree angle in a square of 144? That is a good question which I have to leave with you. I
can only touch on the tip of the iceberg to give you a conceptual understanding about Gann analysis.

The key thing to take away from this discussion is the understanding that the relationship between Gann boxes
and Gann Fan lines is very precise. *There is no room for guessing. *But many books do guess.

Some describe the intersecting corners and centers of the boxes to be the time objectives for trend changes.
Think about this. The length of each box is equal from one to another. The lines that cross in the middle are
always half the length or width of the box when the intersection is extended vertically down to the x-axis.
Books and books write about these patterns giving you time, yet all they have done is to create a fixed cycle
again. We know fixed cycles are not the best cycles to use in trading applications. More importantly, Gann did
not use the boxes in this manner. In Figure 9.10 the intersection of box 4 (bottom right) has a circle
showing a diagonal target in the year 2011. This method of just looking for intersecting points from a Gann
Square will have inconsistent results and poor performance. I would always favor Astrological cycles over
this method for time analysis. But diagonal analysis is never used alone. Therefore there has to be more
to it, and there is indeed.

## Figure 9.11 Gann Square of Nine Relative to Gann Angles and Squares -
Nikkei 225 Index

Source: Aerodynamic Investments
Inc., Market Analyst Software

Figure 9.11 is the same monthly Nikkei chart as Figures 9.9 and 9.10. Two gray areas will help your eye
stay within the white Gann Fan area under the 45-degree-angled line originating from the bottom left. The
circled intersections at A, B, and C are the only signals in this chart of Gann significance. Why? Because they
occur when price targets have been realized as derived from a Gann Wheel and they are confirmed by diagonal
angles. Point B was not even identified in Figure 9.10 because it falls upon a measurement from thirds. Point
A was not in Figure 9.10 either, but could have been as it fits the criteria for that discussion. By adding
objectives on the horizontal axis only points A, B, and C are of interest because confluence develops on the
horizontal, diagonal, and vertical axes. For example, point B is where the 240-degree price target from a Gann
Wheel falls on the horizontal axis. It bisects a descending 45-degree line in the bottom right box. It is
also using the Gann Fan line radiating from the bottom left box as resistance. It is also a vertical target
in time which developed a confluence target zone from astrological cycles (not shown). Therefore all three
cycles in price, time, and diagonal converge at points A, B, and C. This is what Gann analysis can
identify for you and offers an introduction to the geometry involved on the most elementary level. The
Nikkei price high in 2007 was not discussed. Much has to be overlooked in this introductory discussion.

## Gann Price Analysis on the Horizontal Axis; How to Use

The Gann Wheel - The Square of Nine

How do you extract price objectives from a Gann Wheel? Figure 9.12 is a Gann Wheel called the Square of Nine
or a harmonic wheel. Gann used other wheels such as the hexagon wheel, which is a honeycomb pattern. The
honeycomb pattern is better for calculating in units of thirds such as 30 and 60 degrees. The wheel
called the Square of Nine starts at the center with a value of 1 and the first box ends at the number 9.

## Figure 9.12 Gann Square of Nine - The Gann Wheel

Source: Aerodynamic Investments
Inc.,

In Figure 9.12 you can follow the numbers to 9 and then run into the first tricky part where beginners can
make an error. The bottom left corner requires you to move outward by one square and then the numbers will
continue to increase by one sequential unit again until the next outer square is filled again. The numbers 81
and 82 on the bottom left clearly illustrate this movement. If you do not pay attention you can easily find
yourself on the wrong column or row. The numbers will be incremental as you move in a clockwise rotation
through the wheel. Here is how the numbers relate to one another and how this pattern becomes a calculator.

The horizontal and vertical cross-sections display a double line so that I can later rotate the cardinal
cross and angles of the circle as a fixed unit when ‘zero’ is set over a starting price. Here is
how the wheel becomes a calculator to create a price objective. If a stock were trading at a price of $15,
what would the price objectives be, using a Square of Nine Gann Wheel? Find the number 15 on the Gann Wheel.
The number 15 is perfectly aligned under the zero and 360-degree angle marked on the top of the wheel.
Because the number 15 is aligned with zero, we need make no further adjustments; just read the Gann targets
straight off the wheel. The 45-degree price objective from 15 is 17. The 45-degree line from the center of
the circle travels toward the top right corner. The number 17 is the value where the 45-degree line bisects
the path of numbers in rows and columns. We would use the phrase “$17 is 45 degrees up from $15.
” Now skip over to 90 degrees and find $19, then 180 degrees up from $15 is $23. The target of $23 is
directly opposite $15. (We would still say, “$23 is 180 degrees up from $15,” even though 180
degrees is directly opposite the place where we began. As long as you are obtaining higher price objectives
from the wheel, the results of the angles are always “up” from the starting level.) At 270
degrees, $28 is the price objective. A full 360 degrees up from 15 is 34. (You will have to add two
numbers from 32 to fill in the blanks and complete the wheel in this diagram.) That is how a Gann Wheel
is used. To make your first example easy I have left out the targets from three other degrees. The angles
of greatest interest to us in financial markets are 45, 90, 120, 180, 240, 270, 315, and 360. Are all
these angles important? No—not in all markets.

Bonds seem to be attracted to 120 degrees when a counter-trend move develops. Currencies love 90 degrees.
Each market has its own personality that is consistent.

How do we calculate the major support levels from a stock pivot of $15 using the wheel? Instead of moving
clockwise as we did to find resistance levels, we will move counterclockwise to find support because the
numbers decrease as you move counterclockwise. The first target will be on a 45-degree line to the left. It is
located at $13 where the 45-degree line crosses the top left diagonal. The $11 level would define 90 degrees
down. A full 180 degrees down is at $8. (Do not forget to jump the corner at numbers 10 and 9.) Now skip to
the 360 degree target, which is at $4, the number just below $15. If you can follow the wheel to identify
these price targets, you will be able to obtain the price objectives for the next example. The first example
we covered used a value of $15. But a stock that trades in this range would need targets that did not have
such a large spread. Therefore Gann used a wheel with increments of .50 cents. A factor could also have been
used.

What if the price low is $87? The start has to be changed. Move the Mylar overlay on the top of the numbered
boxes to the left so that the zero line at the top now crosses through the number 87. The first target from
87 will be 92. It is just a matter of reading right off the wheel once the start is set correctly. How do
you use a wheel for the Nikkei? How do you use a wheel for a market that trades in fractions? There is
indeed more than just these basics.

The Square of Nine is a very cool calculator. A four year project to decode it took me through a Journey
back in history and to Cairo, Egypt. It has much more to it than just this brief introduction can offer. But we
can look at one of the mathematical properties behind this calculator.

The Gann Wheel is really a square root calculator. The square root of 15 from the first example is 3.873.
Now add 2 and it equals 5.873. The square of 5.873 is 34.49. Rounded to 34 it is 360 degrees up from 15. This
is a full 360-degree rotation of the circle. But using this method creates issues once you try to extend
past 360 degrees. The simple formula above is not the whole story. The logarithmic properties of the wheel
will cause errors if you do not understand what you are working with when doing math in harmonic ratios.
But stay within the first 360 degrees and you will be able to create your own wheel.

How To Create Your Own Gann Wheel in Excel

To identify levels of resistance from a price low, use the following formulas in Excel for each of the
degrees. The formulas are:

Please refer to Technical Analysis for the Trading

Professional - 2nd Edition
for further reading ...