What is Gann Theory?

Gann theory is a technical analysis concept developed by famous trader William Delbert Gann. It centres on the notion that asset prices follow known trends derived from time cycles, geometric shapes, and classical mathematics. By determining the correlation between price and time, traders utilise WD Gann theory to predict future market changes. 
 
Gann theory views price and time as interdependent variables, in contrast with standard technical analysis, which only considers price. The core concept is that the market undergoes important turning points when time and price coincide. By using this technique, traders can locate levels of support and resistance that are hidden on standard charts. 

How Does Gann Theory Work in the Stock Market? 

The foundation of the WD Gann theory in the stock market is the idea that the market is periodic. It is predicated on the idea that previous price movements repeat at geometric intervals. These patterns are used by traders to predict when a trend may accelerate or reverse. 

Gann Angles: 

The Gann Angle is a well-known tool in this system. To construct a grid of support and resistance, these angles are taken from notable price peaks or troughs. 

• The 1x1 Angle: The 1x1 Angle signifies one unit of price and one unit of time. A properly balanced market is shown by a 45-degree angle. 
• 1×2 Angle: The 1×2 angle shows that price is moving more slowly over time. It represents a one-unit change in price for every two units of time. 
• 2×1 Angle: The 2×1 angle shows that price is moving more quickly over time. It represents a two-unit change in price for every one unit of time. 

Example: If a stock moves Rs.1 every day for 10 days, it is following the 1x1 angle. If the price suddenly jumps to Rs.20 in the same 10 days, it has broken into a steeper Gann angle, signalling high momentum. 

How to Use Gann Trading Strategy 

Charting with a Gann theory strategy necessitates a methodical approach. Traders usually use it like this: 

1. Identify Significant Pivots 
   Begin by looking for the highest or lowest point on a historical chart.  
2. Utilise the Square of Nine 
   Determine pricing and time goals by using this numerical tool. It aids in forecasting the potential location of the next significant reversal. 
3. Apply Gann Fan  
   Beginning at a significant pivot point, laying out a sequence of angles (the Fan). This helps the picturing of possible zones of support and resistance. 
4. Track Time Cycles 
   Observe the milestone dates or calendar cycles that correspond with previous changes in the market. 

Application of Gann Theory 

After learning what is Gann Theory in stock market, the article further explores its applications. It goes beyond simple lines. Here are the primary ways it is applied: 

• Price Study 
  To determine where a trend may rebound, traders employ Gann retracement levels (such as 50% or 100%). 
   
• Time study 
  Regardless of price, this method looks at recurrent dates to forecast when a trend change would occur. 
   
• Pattern Study 
  To assess market strength, look for geometric shapes like squares and circles in price fluctuations. 

Advantages and Challenges of Using the Gann Theory Strategy 

Gann Theory offers a very structured method to technical analysis; it also requires the trader to be very precise and patient. 

Conclusion 

Gann theory offers a mathematical framework that uses time cycles and geometry to explain market movements. Although the definition of what is Gann theory may appear complicated at first, learning it is quite helpful, as it provides an organised perspective on market volatility. Traders can improve their ability to predict reversals by becoming proficient with these techniques. A trustworthy online trading app with advanced charting features can be used to begin practising these strategies.