William Delbert Gann considered that markets move in accordance with the laws of geometry. One of his major geometrical instruments was the line at an angle of 45º. He also use angles built on the basis of this line. The Gann line is also called a balance angle (1×1), in which one price range corresponds to one time period.
Structure of the Gann fan indicator
Besides the 1×1 angle Gann also distinguished 8 more angles:
1×1 – 45º (1 price range and 1 time period)
1×2 – 26,75º (1 price range and 2 time periods)
1×3 – 18,75º (1 price range and 3 time periods)
1×4 – 15º (1 price range and 4 time periods)
1×8 – 7,5º (1 price range and 8 time periods)
2×1 – 63,75º (2 price intervals and 1 time intervals)
3×1 – 71,25º (3 price ranges and 1 time periods)
4×1 – 75º (4 price ranges and 1 time periods)
Img. 1 – Ascending Gann angles (upward Gann fan)
Img. 2 – Descending Gann fan
Building the Gann fan
Let’s consider how to draw The Gann fan.There are several ways to build it. In Meta Trader 4 you need to choose "Insert – Lines – Trendline by Angle" and draw a line at the angle 45° from the Low value (upward) or the High Value (downward). Then choose "Insert – Gann – Gann fan" and apply the balance line of a fan to the Gann line that you have already built.
This method is not the best one, because the Gann line is sensitive to the scale and the scrolling makes it shift. In this case fan needs to be adjusted with the line, and the rest angles will shift as well.
Another method is to choose “Insert – Lines – Trendline by Angle” and mark two points. Initial and terminal points should be marked on extreme values of the price (low - low , high - high, low – high etc.) The best option is to draw the fan along the trend line (after the first correction).
This method is better than the original but still scrolling of the chart can make the price shift.
The reason is that the Gann fan doesn’t scale. But this problem is solved by another, relative, instrument, which is built on the basis of percentage. This instrument is called the Fibonacci fan. To convert the angles according to settings of the Fibonacci fan, you need to deduct the tangent of required angle from tangent of 45º angle (equal to 1).
We will obtain below coefficients:
1×1 – 45º › 0,875
1×2 – 26,75º › 0,75
1×3 – 18,75º › 0,667
1×4 – 15º › 0,5
1×8 – 7,5º › 0
2×1 – 63,75º › -1
3×1 – 71, 25º › -2
4×1 – 75º › -3
8×1 – 85,5º › -7
In the toolbar you need to choose “Insert – Fibonacci fan”, remove all previous values and will put in the obtained values.
Now we will built a "new" Gann fan, which will not be sensitive to the scale.
Img.6 The Gann fan built with the help of the Fibonacci fan
How to use the Gann fan
So, let’s interpret our fan. If the price is above the angle 1×1, it means that the trend is bullish, if it is less than balance angle, the trend is bearish. Upon reaching one angle, its price breaks through it and moves to the next, or bounces and moves back to the original level. It is also important to take into account the points of intersections of angles of two fans with the same time period.
The Gann fan theory is a very strong analytical instrument for the financial markets. A trader's main goal in building it is to find the correct scale that will help to predict turning points with a great precision.
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