W.D.

Gann was one of the most famous traders of all time, and was heavily involved in trading the
commodity and stock markets. To this day there is a mystery regarding the trading methods he used for
forecasting future price movements, but his legacy to the technical analysis sector is huge. All trading
platforms offer Gann tools, and the most popular platform, the MetaTrader, has a special tab on the
platform called simply “Gann”. Under this tab, there are three tools that a trader can use: Gann Line, Gan
Fan, and Gan Grid.

how to trade with Gann1

The idea of this article is to explain how to use these three trading tools, and what other things we need
to consider when trading Forex markets with the Gann system. It is important to note that Gann was a
strong believer in the time element attached to a forecast.

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Interpreting the Gann Trading Tools

According to Gann, every financial product has its own way of moving, and he introduced the concept of
the 1 x 1 line. This means that a specific angle must repeat on and on for that financial product, and the
angle is different for rising and falling markets. The reason for the angle being different comes from the
fact that market psychology plays an important role. In rising trends, there is a strong tendency for
complacency, while in falling trends, market participants panic. As a result, a bearish market will always
have a steeper angle, hence a steeper 1×1 line than a rising one. When it comes to the Forex market, it
means that each currency pair has its own way of moving to the upside and to the downside. This is only
normal because a currency pair reflects the economic differences between the two currencies that form
the pair.

The Gann Line and Grid

The first Gann indicator offered by the Metatrader is the Gann line, which, in fact, represents the 1×1
line. The idea behind the Gann line is to use it to draw channels (by connecting tops and bottoms), and
to time the break of such a channel with the Gann tool. However, the MetaTrader does a poor job in
showing the importance of this tool, and it cannot be properly used with the MetaTrader settings. With
these settings, it looks like a normal trendline, and it has no use whatsoever other than showing
potential support or resistance levels. Applying the Gann Grid indicator on a chart will result in the
screen being filled with multiple squares, equal in size, the idea behind it being that future resistance
and support levels can be found based on these squares. Unfortunately the indicator will result in
crowding the screen, leaving little space for another technical analysis tool.

Gann Fan

Of all the Gann tools offered by the MetaTrader, this one is by far the most important, and best
represents Gann’s interpretation of markets. The Gann Fan is to be found under the same Gann tab. The
idea behind the Gann Fan is to use it after a top or a bottom is in place, to find out the angle of the new
move, plus important support and resistance levels moving forward. The line in the middle is the 1 x 1
line, which represents the angle of that respective currency pair. The other lines should be interpreted in
pairs: The first ones are the 1 x 2, the next ones are 1 x 4, and so on, and they provide support and
resistance levels. The chart below shows the recent EUR/USD move lower, and the break lower comes
from the moment the 1.12 area was cleared. If we apply the Gann Fan tool from that point, it shows us
the angle of the whole-move price resistance levels that the price met during the fall. These resistance
levels were given by the 1 x 2, 1 x 4 and 1 x 8 lines – the ones that are above the 1×1, as the overall trend
is a bearish one.

how to trade with Gann2

As you can see in the chart above, the more time passes, the more the lines diverge, in the sense that
the angle between them is becoming bigger and bigger. This means that the support and resistance level
is becoming more difficult to break moving forward. For example, if the price bounces from the current
level all the way to the 1.1063 area where the 1 x 2 line currently is, it will be more difficult for the line to
be broken, and a strong resistance should be met at that line. The usual caveat also applies when trading
with the Gann Fan: The longer the timeframe, the stronger the support and resistance levels are. It is
one thing to use the Gann Fan tool on the hourly chart, and a totally different thing to use it for the 4-
hours or even longer time frames.

The Gann Fan tool is the most popular one among traders as it has the big advantage of being extremely
visible. This means that support and resistance levels are there on the screen, and it is impossible to miss
them. The next article here on the Forex Trading Academy deals with interpreting Andrew’s Pitchfork,
and there is a reason for this sequence. This reason is the 1 x 1 line in the Gann Fan as, in this case, it
acts like a magnet, attracting price. The same thing will apply in the case of the Pitchfork, only that the
line is named differently, and the interpretation is a bit different as well. Besides these Gann tools
offered by the MetaTrader trading platform, there are other studies that make the Gann system
complete. These refer to the Gann Square, a tool that uses astrology and numerology to identify a
reversal in the markets. However, so far it cannot be proved that these theories have the ability to
influence markets, and this is one reason why not all trading platforms offer the Square within their
default settings. The indicator can be uploaded, though, as a custom one, as explained in the article
dedicated to the MetaTrader platform.