21st century Gann
Shorter-term trading requires an adjustment and the manipulation of the decimal point. The Dow bear market of 2007-09 had a high of 14,198 to a low of 6,470, for a range of 7,728 points. From the bottom on March 6, 2009 to Aug. 27, 2010, when the Dow made an important turn after the August sell off at 9,937, few people realized that it was 77 weeks off the bottom.
Amgen had a low on that August turn and found another low 65 trading days later (see "Pitching in"). With a high on Oct. 19 at 58.74 and a low at 52.19, there was a range of 6.55. In a world with a five-digit Dow, four-digit SPX and either two to four digits to the right of the decimal on futures or forex, traders must adapt.
In the case of 7700/77 or 65/6.55, the meaning is the same. This can be used as a standalone technique or in combination with another tool. As we have seen, it would be hard to combine a long-term range calculation with any other method. However, shorter-term trading is about developing conviction about a move and the more evidence the trader can stack, the greater the probability he or she will get to the point of allowing a winner to run.
For example, the Amgen move is combined with an Andrew’s pitchfork. This particular pattern reversed right on the lower pitchfork line to give the trader more confidence in the overall technical condition. There was good evidence to take the initial trade, but with early congestion, it may have challenged the trader’s faith. Eventually, this move gapped through the midline right to the upper channel, making it a good swing trade.
Another variation is where time and price square in the same place. A great example of this was the April top in the KBW Bank Index (see "Banking on it"). The high since the March 2009 bottom came in at price point 58.81 in roughly 59 weeks. (From March 6, 2009 to April 21, 2010 it is exactly 58.71 weeks.) This method gives the trader a high degree of timing precision. If a square relationship can be identified on a key sector or important market leader, it can be a huge edge because the trader can leverage this information into many kinds of trading opportunities.
Gann’s techniques are so new to most of us that it is necessary to have an open mind as we approach them. For those practicing these methods for the first time, it will require practice and patience to learn to trust the pattern. Gann called the squaring the range with time method his most important discovery, and it is still as valuable today as it was in his era.
Jeff Greenblatt is the author of "Breakthrough Strategies for Predicting Any Market," editor of the Fibonacci Forecaster, director of Lucas Wave International LLC and a private trader.