William Delbert Gann was an expert market forecaster. His ability to use the principles of geometry to understand and predict market movements led him to create the famous Gann Theory. This tool is not only elaborate but also requires a deep understanding of its principles before it is employed in actual trading. Curious about how you can use Gann’s principles to maximize your returns by successfully predicting the market? Keep reading to learn more about Gann Theory below. 

What is Gann Theory in stock market trading?

When it comes to predicting future market moves, the Gann Theory is incredibly useful. The main purpose of Gann’s Theory is to understand how at various points in time different aspects will influence the market. Gann Theory is useful to predict the future movement of the market. For instance, a certain market pattern might influence the movement of a share. At another point in time, it could be the price that influences the market. Understanding this relationship and making market predictions based on it is what the Gann Theory aims to do. 

In short, the ideal combination of share price, time, and the trading pattern is identified using the Gann Theory to help traders find successful trades in the market. However, there is a lot more than just the Gann theory meaning to understand how to use this as an analysis tool. For example, one aspect that the Gann theory definition does not cover is that of Gann angles. Let us take a look at how these angles work in detail. 

Gann Theory Explained

W.D Gann developed a slew of unique methods to analyze price charts. According to the theory, different angles and patterns possess features that allow one to predict the price action. Both the price interval and the equal time are used on the charts for the Gann technique to be applicable. To make its predictions, Gann’s technique uses a series of angles. Different angles are drawn at the trade’s varying price points across time. The angles help to denote the past, present, and future of the stock’s share price. After the price points are connected to the charts, the calculation of the Gann angles is carried out. 

Gann Theory Meaning and Example

The following example helps examine how the Gann Theory helps us. Let’s assume the market is in an uptrend and it remains higher than the ascending angle without breaking. In this case, the Gann theory’s prediction will suggest that this market should continue to remain in that uptrend in the coming period. If the market — on the other hand — is on a downtrend and the stock’s price remains below the descending triangle, Gann theory suggests that the market will continue to weaken over time. Traders make use of the Gann trading strategy to secure good returns in the market. 

Application of Gann Theory

Gann time as well as price theory can be used to study patterns as explained. 

  • Price Study: Using the aid of Gann angles, you can follow the price movement of a stock. The pivot levels help identify the future price movement of a stock. Additionally, the resistance levels and support levels can help ascertain can also help determine the stock price. 
  • Time Study: Gann’s time study model can give traders the idea at which the stock’s price can reverse. You are required to read the historical data and analyze the stock’s price at a different point in time. The time study model of Gann’s theory helps traders estimate at what point the price of the stock can reverse. For this estimation, one is required to analyze the movement of stock prices at different time periods.
  • Pattern Study: Using patterns can help find the movement of stock and the activity of an investor. Pattern study includes the trend and patterns that show the reversal in the stock’s movement. 

Conclusion

Gann’s theory can be used when it comes to studying prices, time, and patterns in the stock market. However, before making it a part of one’s daily trades, testing it and learning the basics is critical as this can backfire unless practiced carefully.