Technical analysis

Gann Analysis. Theory and practice

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William Gann is a world famous trader, who made an enormous contribution to the development of trade exchange and has helped many investors to look at the financial market from a different angle.

Gann trading system at the time was a popular technique, which was used for the analysis of the market, we will note that many years later this approach is still used with great success a large number of investors. The basic idea of this method lies in the fact that for the analysis of the trend of prices highest priority have the trend slope and the time during which developed directed movement.

Taking into account these factors has created a system of Gann, which includes a number of original indicators, they all perform a specific function and help the most to objectively assess the market. This approach can be considered as one of the components of technical analysis, because the basis of these methods is based on the thesis:
“ History tends to repeat itself, the price takes into account all”.

William Gunn one of the first to realize that the basis of the market movement is the psychology of its participants, who have their own hopes, fears and thoughts. In many situations, the investors who trade on the stock exchange, repeat their actions time form certain behaviors and price patterns. the Gann system is based on three important components:
• Time estimation. In the basis of analysis of historical data and based on them identifitseerida moments that can be repeated in the future.
• The price range. Analysis of the levels of support and resistance – are important components on which is based the described procedure. It is near to strong levels of investor behaviour may change, which directly contributes to changing trends in prices.
• A plan. Any analysis needs to be a system, a trader needs to consider many things that can potentially affect the pricing of, and act in a given algorithm.

On the basis of his method, William Gann developed a number of technical tools, allowing to carry out qualitative analysis of the market. In this article we will look at each of these tools, we describe their practical application, consider the main advantages and disadvantages.

The Gann lineGann Line – this is quite an interesting indicator of the use of similar classic trend lines. They act as a support level resistance, which could change the current trend.

The main feature of these lines is that they are always built with angle of inclination equal to 45 degrees relative to the price. To build a Gann line is very simple, you have toolbar on your terminal, select this tool, choose the point from which you build lines, and to carry it to the end point.

How to use the Gann line

So you get a slanted line which will act as support and resistance. This indicator gives the number of signals to investors, which can be considered as prerequisites to the acquisition of a binary option. For starters, you need to pay attention to the position of the price relative line position above shows the development of the uptrend, then the priority will be to search for potential buy signals.

If the price is located below the line, the market is developing downtrend, and therefore, we need increasingly to consider the sale. Gunn’s line is often used as potential support and resistance. When price touches this area, we can consider the entry points into the market.

Note that one touch is not enough, you need to look for some confirmation that the trend can really be replaced. For example, in this case, you can use Price Action patterns. Gann line and good formation can be a good background to purchase a binary option. It should be noted that this indicator is often used by many tradurmi in different markets, ranging from futures exchanges and ending with binary options.

The Gann Fan

This is the second most popular tool of this methodology. In its concept, the Gann fan is an inclined line, which further built a line of four up and four down. This indicator works well on any timeframe, but it is better to hold larger time intervals, the time above. The construction of a Gann fan is a fairly simple action, which will not cause difficulties even for novice investor.

how to use the Gann fan

To build you need to select the tool, and the starting price point to stretch a slanted line. As a result, will automatically build the additional eight lines that will be needed for further analysis.

The Gann fan, how to use? – this question often causes some of the novice option investors. However, the Gann fan is very easy to use and gives good signals.

Each component of the fan is an inclined support and resistance.
Accordingly, if the price goes up to one of the levels, we can consider the possible entry points. Any opportunity for the acquisition of an option must be carefully filtered, for example, using patterns or technical indicators.

Gann Grid

Gann grid is the set of sloped levels, which is based on the price chart in the form of meshes, and hence the name given to the tools. Each level is built at an angle of 45 degrees relative to the price and is a long-term support and resistance. Many believe that the same fan at least every detail shows potential reversal levels than the Gann grid, how to use this tool even a novice will understand.

The proper construction of the mesh Gannascus it is difficult to say which is better, it all depends on subjective preferences. However, Gann grid indicator that reliably indicates potential market reversal. Of course, any touch of the Gann grid, you need to carefully filter!

To do so, enter the market you must consider many variables, which will give the opportunity to buy an option with good profit potential.

The pros and cons of Gann analysis

When using the Gann tools to identify some advantages and disadvantages, let’s start with the first:
• Reliably indicate a possible reversal or correction. Touch Gann levels doesn’t mean the fact that the price fully unfold, but in some circumstances you can count on a good bounce.
• Ease of use. After a little practice even a novice trader will be able to use these tools.
• On the basis of these indicators it is possible to construct the system, which with proper implementation will bring good and stable profit.

Let’s discuss the disadvantages of this method. The main disadvantage of the system is that it interpretirovat price movement from a mathematical point of view. In fact, most parameters of the imbalance between supply and demand into account is not taken, we consider the market only graphically, looking for patterns that might work themselves in the future. Thank To assess the market for these data may not be enough!

Insights

Some believe that the described strategy is not much different from the methods of Fibonacci, however, such a view is mistaken. They are two distinctive systems which exist independently from each other. As for the Gann methodology, if properly used, it will give you the opportunity to look differently at the market and find important patterns that will help you to earn profit on a regular basis.

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