Gann Square of 9 Method

August 2, 2017 | Author: Prasanta Debnath | Category: Forecasting, Algorithms, Wheat, Prices, Processes
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Stock and commodity market trading method through gann square of 9 technique....





W.D. Gann used ONLY ONE algorithm from the Square of Nine to make all his price forecasts in the 1909 Ticker & Investment Digest article. Just one. There are ELEVEN examples of this one algorithm in that article plus two future forecasts. It is the same method in every forecast, with only slight variations. The method I am referring to indicates price points, but does not project the trend. I first came in contact with the 1909 Ticker article ages ago. It took me about four years after obtaining a Square of Nine to discover the method; then another year and half figuring out the slight variations to use and a set of rules to follow. I know of at least one person (he doesn't know me) who has used a similar method, in my opinion, for a long time.

Everything I have seen to date by others on how Gann arrived at the price points in the 1909 article with the Square of Nine is incorrect and I can irrefutably prove it to you. When one sees the same method used over and over in each forecast, one will understand his true method immediately. It will also become clear that Gann was using the Square of Nine early in his career. The true method he used in these forecasts is NOT about setting the 0 line on a price and watching prices at every single angle that originates off the 0 line. It is not about hoping one angle out of a multitude of choices (45d, 60d, 90d, etc.) will be the one that works. When floating the decimal on the Square of Nine, more possible prices become available. Without a repetitive, price pointing model to clarify which price could be support or resistance; one is left with too many potential price alternatives. The method Gann used pinpoints a specific price at different junctures in a trend. The Gann method is NOT about square roots, an area where the majority of traders have concentrated their time in working with the Square of Nine (I certainly did). Square root harmonics have a role all their own in price fluctuations. However, that isn’t what Gann used in every one of the 1909 trades. Rather, one angle of the Square of Nine targets the price and the other angle eliminates a lot of the copious price possibilities presented on the maze of numbers spiraling outward sequentially. That is the secret that Gann would never share with his book and course buying public, or his partner Lambert. All eleven forecasts he gave can be identified down to 1/8 of a point with these two angles. The method is unmistakably the one he used to arrive at the price equation of his forecasts. The technique is simple yet complicated by the fractal nature of the markets. It is hidden in the maze of numbers due to the required floating of the decimal, yet available when the rule upon which it operates is learned. Mostly though, the method is the one Gann undeniably used to target all the price points he gave in the 1909 article.

THE CATCH-22 The CATCH-22 to Gann's clandestine method is that I think it can only be used effectively as a trading edge the next day as opposed to forecasting ONE FINAL HIGH or LOW price into the future as implied in the 1909 article. More than one outcome is generated by the method, but we are given only the final turning point in these movements by the writer in the 1909 article. Did Gann really make those long term forecasts? If he didn't, why is there a single algorithm used (with multiple indications) from the Square of Nine to identify every one of the price points in those eleven forecasts? Conversely, are we to believe he had some magical astrological technique to pick the terminal price point out of the many possible outcomes the method indicates? There is some evidence to support the questioning of whether Gann made the forecasts exactly as they were presented in the Ticker article. His two forecasts into the future at the end of the article failed to occur. Those results are disconcerting after one reads about eleven phenomenal trades in which both the trend and

reversal point were supposedly given in advance. After these two failed forecasts, Gann all but disappears in recorded financial print between 1910 and 1918. Secondly, there is a less than inspiring story about how that article was conceived according to a man who was there. F.B. Thatcher claims to have been Gann's advance man at the time. Thatcher told well known trader and author Larry Williams in the early 1970's that the article was embellished. The story is in a recent book published by Williams. Maybe some portions of the forecasts were embellished, as Thatcher suggests, in order for Gann to make a name for himself early in his career. Lastly, having discovered (finally) how the Square of Nine pinpointed his target prices, I know one must have the Start Price in order to set the 0 line to arrive at a possible end price (PEP). In Gann’s United States Steel forecast, he predicted a top of at least 58, and no higher than 59. Then he gave the next low point before this top actually occurred. Not knowing for sure that 59 was going to be the top, one cannot set the 0 line on the correct price, in order to arrive at the 42 predicted price low. I don’t see how that particular forecast could be real. Another bothersome factor for me occurs thirty two years after the article is written. At the end of the 1909 article, Gann predicts Wheat will trade at 1.45 in the spring of 1910. The highest price for Wheat in 1910 was the 1.16 area and it went lower for several years. Yet in 1941, when he publishes the book, How to make Profits in Commodities, on page 79, Gann says the following: “1910-February and May, Wheat high, 1.16 and 1.17. Note 118-1/8 was one-eighth of 1.35 and 1.20 was one-fourth of .75 to 1.35, making this a selling level.” If 1.16 was such an obvious selling price, why forecast 1.45 thirty-two years ago in 1909? Did he not think that article was still around? There is also a discrepancy in the type of forecasts he allegedly made that strike me as peculiar. It is almost as if another personality included this forecast in the 1909 article. Not one of the (non-day trade) eleven forecasts in the article mentions when, in terms of time, a price reversal will take place. There is a lone example where the speaker tells how Gann forecasted the Industrials would culminate on an exact day in August to within four tenths of one percent of the actual high. The inconsistency of using time once and then never using it again in any of eleven forecasts strikes me as odd. Why not forecast the dates on all the forecasts if he really could do it once? There are other reasons why I question the validity of the exact portrayal of his trading in that article, notwithstanding some over-the-top predictions and unflattering personal recollections of Gann by a few who knew him, including his son. Believe what you want about whether the forecasts were 100% truthful, but there is no doubt in my mind that in those forecasts is an algorithm based on the Square of Nine that points to all the prices he predicts or discusses. The method still works today, it just isn’t known by very many in the trading business. I can see where the Gann method in these forecasts offers sensitive numerical points of force, but without a known trend, the points are not necessarily going to get touched. Trend and the price

points have to work collectively in order for a forecast to work. If Gann made those forecasts, he had to have used some sort of trend determination. His two forecasts in the future were wrong on the trend, but I can see why he selected the 1.45 price target in May 1910 Wheat based on a previous low in price and time. Gann used astrology, cycles, and arcane methods to devise his trends. I think he then combined his algorithm from the Square of Nine with his trend calculations to arrive at a price point that would coincide with the change in trend. Without the correct trend, the multitude of possible numerical outcomes on the Square of Nine is overwhelming. It is a lot easier to use the points offered that are close to the prevailing price rather than forecasting a price reversal way out into the future. This is why I definitely see how all three of his intra-day trades were probably done exactly as they were defined in the 1909 article. Using what I call the Prime Start Price, I could give some reversal points off a known SP500 low or high with an assumed trend that would have a strong likelihood of being some sort of reversal in price days or weeks ahead, but how much of a reaction is unknown and whether the points get touched is unknown. Which sensitive price point would be the final one that completely reverses the trend would also be uncertain. The Prime Start price is the price recorded by the stock exchanges. There is no floating of the decimal. If the SP500 made a low or high at 1180 and a new trend commenced, the Prime Start Price is 1180; not 80 or 180 according to the floating of the decimal on the Square of Nine. On a stock low or high at 52, 52 is the Prime Start price; not 152, 1152, 1052, 520, or 1520. The other five numbers do represent 52 on the Square of Nine as Start Prices. They are just not the Prime Start Price. In order to use the Square correctly, one has to use all the different Start Prices with the Gann method. There are six or seven ways to represent each Start Price on the Square of Nine. There are three ways to represent a date or time. One can conclude this from observing Gann’s trades in the 1909 article. I should mention that even with the correct method, the same as used by Gann in all the 1909 forecasts doesn’t always work. Other times, it identifies terrific reversal points. Support and Resistance levels can get broken when the force behind them is powerful. One interesting rule in using the method is that I found the failed support points to be excellent resistance levels when price bounces back to them. One uses the broken support point to enter a short trade with the down trend with tight stops just above the old failed support point.

PROBLEM SOLUTION: ONE DAY AT A TIME Three of Gann's trades in the 1909 article were day trades. Other forecasted trades did not hit the price point he projected for weeks, sometimes months. In one of the Wheat trades, the actual price did not hit the targeted price he is alleged to have given until a year later. In the US Steel trade, he gave a top price to reverse at and gave the next low price before the top was even made. In another trade, he supposedly told a man by the name of Gilley that Wheat, while trading under 1.10 around noon, must hit 1.20 by the end of the day.

In that last trade, both 1.10 (minor resistance) and 1.20 show up with his method. I see many reasons why 1.20 would be more powerful. I would not have said, as he did, price must get to 1.20 by the close of the session even though there is an algorithm that connects the date to 1.20. If Gann did say what he is purported to have said about Wheat touching 1.20 that day, it must have been because of that algorithm which tied price to the date. The date a stock makes a high or low price is often connected by the model. Many other trades in the 1909 article also connect the date and the price of the final high or low. I used this algorithm in the example at the end of this article. A reporter for the Wall Street Journal at the time, talking about the surprise move in Wheat when it rocketed to 1.20, said someone placed an order at 1.11 and from there, prices just rose quickly. That discussion, in 1909, is consistent with how prices move away from penetrated sensitive points. 1.10 was a sensitive point. A sensitive point is like a water table. Once the water table is penetrated, the water will keep rising. Likewise, price wants to move to the next sensitive point once one sensitive point is surpassed, but not necessarily the same day like what happened in the famous September Wheat trade. The Water Table Effect is a key factor in trading the Gann method. I can easily duplicate Gann’s trades on the day (ON DATE) they occurred with pinpoint accuracy, but I would not have been able to forecast the non-day trades in the way they are presented in the 1909 article. F.B. Thatcher said he knew the truth, but the truth is buried with him. I do know that when using this method, there is more than one price outcome, like in the Wheat trade mentioned above. I do know that on the Square of Nine there are many support and resistance points that are possible, and picking the final reversal point in advance is a guessing game. The method covered in the written manual and the workshops consists of using the algorithm discovered in the 1909 article one day at a time, with some hint of the next minor target "as long as the trend continues". As a trader, one takes partial profits and holds some position with stops to deal with the unknown date of trend termination. An example of how this method works on an equity is shown below. This is a chart of GM in late 2004-early 2005. A low was made on December 6 at 37.92. A high point occurred on January 3 at 40.8. In order for the drop from the top to be an extended decline, cycles had to be pushing down hard in early January. Otherwise, a smaller reaction or minor correction would have occurred. Without having precise and consistently accurate cycle forecasts, one doesn’t know if any drop will be a small or big decline in GM. I say this having published cycle forecasts for eleven years on a month to month basis. It’s not easy.

A few days after it is obvious that GM set a low on December 6, and assuming the trend continuing upward, one can get an indication of a profit taking point or short position entry based on the Gann method. My version of the Gann method of the Square of Nine tells one nothing about the trend factors. What the Gann method does predict is a three-fold indication of prices meeting resistance between 40.4 and 40.9. (By the way, none of Gann’s eight non-day trade forecasts mentions when in time, the final turn will occur.) The first two indications originate from the price low of 37.92 and the date of December 6 respectively. The third factor is that on January 3 price touches the resistance prices and an algorithm can be used to see if the date of January 3 is tied to the price in the resistance range. It is and therefore a three-way indication of resistance is given on that day. I call this last indication the ON DATE algorithm. Gann used it on a day trade when he said that Union Pacific would go to 168 ¾ but not an 1/8 higher without a good break. The way I see the method that Gann used in all his price forecasts is as a SUPPORT and RESISTANCE calculator and only ONE DAY AT A TIME. No fancy forecasts are made very far into the future. Gann’s forecasts in the 1909 article lay the foundation for how one should use the Square of Nine and it is very, very different from the standard way that it is taught. The value of the Square of Nine is strictly limited to price targets, profit taking, and trade entry support and resistance points close to the prevailing price. It is an edge with tight stops that the trader needs, but it isn't the holy grail of trading as portrayed in the 1909 article-that is the catch-22.

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