Gann Lines and Angles Indicator Explained

Definition of the Gann Lines and Gann Angles:

Created by William Gann, the Gann lines and Gann Angles are a mathematical and geometric approach at developing a trading strategy for the forex, stocks and commodities market. The basics of the use of Gann lines and angles are:

(1)     Consideration of price, time and range.
(2)     The cyclical nature of the markets.
(3)     The geometrical nature and behavior of market prices.

The Gann angles are an attempt to produce an indicator which can relate price to time. For instance, Gann angles are presented as quotes of price to time, e.g. 1 X 1. This means that 1 unit of time is moved to the right and 1 unit of price can be moved up or down. A balance is seen at 45 degrees, which is the Gann Angle 1 X 1 quote we have just explained.

GannFan

So what Gann did was to use trend lines to connect tops and bottoms and project them into the future so these lines and angles could be used to project where the price action of a currency pair would be after the passage of a particular length of time.

Components of the Gann Indicator

Gann indicators could be Gann lines or Gann fans. The Gann line draws a single line on the chart. The Gann fan draws the 9 Gann lines at the respective angles. The trader’s job when performing the trace is to start from the lowest price and trace upwards, applying the 1 X 1 line to the price lows. The reverse is done in a downtrend, starting from the highest point. As this line is applied, the oher Gann lines align themselves into place, radiating from the start point to the various angles calculated as follows:

  •  1 x 8 line – (82.5 degrees)
  • 1 x 4 line – (75 degrees)
  • 1 x 3 line – (71.25 degrees)
  • 1 x 2 line – (63.75 degrees)
  • 1 x 1 line – (45 degrees)
  • 2 x 1 line – (26.25 degrees)
  • 3 x 1 line – (18.75 degrees)
  • 4 x 1 line – (15 degrees)
  • 8 x 1 line  – ( 7.5 degrees)

Indicator Settings

The Gann lines and angles are listed on the MT4 among the Gann indicators. To attach it to the MT4 chart, click on Insert -> Gann -> Gann Fans (or Gann lines).

GannFans

In terms of appearance, some modifications to the indicator can be made. These modifications can be either to increase or reduce the line thickness of the lines or to change their colour to make them more visually observable.

Usage of the Gann Lines and Angles in Forex Trading
Support-Resistance Trading

The reference point for the Gann Lines and Angles is the 1 X 1 line, which is inclined at 45 degrees. There are a possible nine Gann angles, each of which might be used as support or resistance whenever prices are trending. When the 1×1 key Gann angle line is broken, a reversal is in the offing. When this happens, it is expected that the price action would keep moving until it hits the next Gann angle line, which can then be used as a Take Profit point.

For instance, if price action of a currency pair is located above the 1×1 (45 degrees) Gann line when a Gann fan is applied to the chart, the market momentum is bullish. But of price action breaks below the 1×1 line, momentum changes to a downtrend momentum. This is a sure sign that the price action would trade below it and keep heading down to the next available Gann angle line, which is the 2×1 line (26.25 degrees).

On the other hand, if the price action is declining and prices are located below the 1×1 line, this is an indication of bearish momentum. If the price breaks above the 1×1 line, this is a bullish reversal and price would then move to the next Gann line above the 1 X 1 line.

The snapshot demonstrates the first of the two scenarios.

Gann_SR

We see an uptrend with the price action being supported by the 1 X 1 line until the price action breaks below this line with a gap. From then on, price action moves all the way down to the next Gann line.

Gann Line Bounce

It also follows that as long as price action bounces on the 1 X 1 line, a long trade would be justified. If price keeps getting resisted at the 1 X 1 line, then a short trade would be in order. You can see from the snapshot above that subsequent breaks of the Gann lines lower than the 1 X 1 line resulted in situations where there were upward pullbacks that did not break these lines to the upside, resulting in possible short trade entry areas.

For all trades, the Take Profit level is the next Gann line that shows up ahead of the price action.

Conclusion

It is essential that you practice how to trade each setup on a demo account before using the indicator to trade real money. Also pay attention to risk management.

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