To be a successful trader, you must have a trading plan and a strategy that will establish parameters on which you should base your operations. This time, we are going to talk a bit about the trading principles taught by the legendary stock and commodity trader W.D. Gann. This is a multi-timeframe strategy that takes advantage of the incredible Gann box that allows the trader to precisely determine the exact points at which stocks or commodities (or any other market) should go up and down in a given time.
When we understand how markets move like W.D. Gann, then the way of trading the markets becomes much easier. Gann’s box strategy will make you understand the underlying mechanisms behind the markets.
Disclaimer: this guide shouldn’t be considered investment advice. All the information provided by AltSignals and its writers is not professional advice and was created for educational purposes only. Never invest more than what you are able to lose and always request help from a professional financial advisor.
How to trade with Gann?
- Plot a Gann Box from the low to the high of the previous day, for bullish candles. For bearish candlesticks, plot a Gann Box from the high to the low of the previous day
The Gann Box Indicator is available in many popular trading platforms, although if you’re looking for a recommendation, TradingView and MetaTrader are very useful.
This tool is different from Gann squares which require the ratio of time to price to be 1:1. On the vertical axis, the Gann box has Fibonacci retracement levels, while on the horizontal axis, it has Gann time zones based on the Fibonacci sequence.
With this, we integrate time into our trading strategies, which allows us to improve the overall performance of our systems. The Gann time cycle becomes so useful because of how cycles combine, which we can see in the Gann box.
- Stretching the Gann box to the right will make the 0.382 time cycle align with the price level of the previous day.
This basically means we have to align the time cycle of 0.382 with the price at the end of the day. In order to align the time cycle we have to pull the right side of our Gann box and stretch it until we get a 0.382 time cycle alignment regarding the candle of the previous day.
Traders are usually only taught to focus on price, but the problem is that not many people talk about the time axis. From a practical point of view, traders lose in most of their trades because they don’t know how to enter the market at the right time.
- Wait until the price is between the 0.618 and 0.75 time cycles (these values are used because they are the most common in the Gann strategy). The number 1,618, or its inverse 0.618, known as the golden ratio, or Phi is considered one of the most important numbers in mathematics.
This is one of the most important and valuable numbers that can be used to accurately forecast price reversal points in the market.
Now that we have a confluence between time and price as suggested by the Gann indicator, we can go ahead and determine the best price to enter the market, which, in the case of this example, means finding the best price to buy.
When the price breaks above the 0.382 cycle, it is recommended to place a long order. If on the contrary, the price falls below the price cycle 0.382, it is recommended to place a short order. The stop loss must be placed at the low of the previous day.
Through this strategy, we can enter the market with minimal risk and we can take advantage of the bullish or bearish momentum as much as possible. This is because we can schedule the entry with very high precision when we use the confluence of time and price.
