Gann Studies: Reality Behind Legend

A Live Legend of All Times

Even in the boisterous world of finance, where there never seems to be a dearth of men of renown, it is rather seldom that figures of this size and reputation appear: Mr. William Gann has been referred to as a trading legend and the most successful trader since the early 1920-s. For the sake of justice, one should mention that probably since about the same time he has been called none other than a lucky marketer of ideas by some others. In any event, his unique predictive abilities and the forecasts he made on both trading and non-trading issues are still well-remembered and beyond any doubt. The somewhat mystical air that the alleged use of astrological concepts in his predictions made Gann an all the more mysterious figure and his theory more attractive to many.

William Delbert Gann was born to the family of a cotton rancher on a Texas farm June 6, 1878. Being obliged to provide for his numerous younger brothers and sisters, he had never attended grammar or high school. Having moved to NY at the age of 25, he set up a brokerage of his own called W.D. Gann & Co. Gann's major predictions include the end of WW1 in 1918, the end of the Great Depression in the States in 1932 and Perl Harbor. He is the author of 8 books and one of the most popular trading theories ever.

William Gann's ascension to the heights of the world of finance began in 1908 when he invented a theory called "the market time factor." By using his newly invented trading approach, he was able to make several tens of thousand dollars using two accounts that contained a total of just USD 450. A true Wall Street celebrity, Gann was a tremendous success as a commodities trader.

The Technology behind the Legend

The basis of Gann's theory was formed by the following three maxims:

1. There is nothing else to take into consideration besides price, time and range;
2. The markets move through certain cycles;
3. The markets are geometric in nature.

The theory could be used for three major types of predictions: price, time and pattern forecasts. To make a forecast, you first need to select a time period (normally an intermediate or short-term time period) and choose the high and low that will become the starting points for the Gann lines. Normally, the high and low are determined by employing some other technical analysis method. When the high and low are determined, a 1x1 or 1x2 pattern is applied, the difference being in the angle of the line being drawn. After the pattern or 'cycle" is completed by linking the two points, similar 'cycles" down the trend-line are searched for. Probably, this is what has been so fascinating about the Gann method - seemingly, it's like falling off a log, just tack a crack, and you are a success. But when you come to grips with the technique, all the ease is gone. To locate the low and high, Gann used some mathematical methods, including and similar to Fibonacci. His amazing command of those and, as is surmised now, some other clandestine methods, is what is responsible for most of his financial success.

During his life, Gann kept secret the astrological methods he used for predicting stock market actions. It is now said that all the astrological work for Gann was performed by two outstanding Canadian astrologists of the time - Lorne Edward Johndro and Kenneth Brown. All this says that there is a lot more to the Gann theory than what the average trader knows and can apply. Consequently, the average trader is highly unlikely to be able to hone the technique to the point when it starts bringing in the kind of profit it earned for its inventor. Most likely, the technique will serve him as just another method that allows drawing support and resistance lines. And unless you are prepared to spend years on research and mastering the technique, it is best to use the Gann studies as just another method in your combination that will help you prove a decision made by applying the whole of the combination. Or, better still, avoid using the method altogether.