How to use the Fan Gunn
Hello, comrades forex traders! We continue a series of lessons on the Gann trading methodology.
In this lesson we will talk about the Gann Corners, which many of you know as the “Fan Gann”. In fact, this is one and the same. We will analyze how to build these angles, what is their essence, and most importantly - how can we put the Fan Gunn into practice in our trade.
What are Gann Angles
Gann angles, or the Gann fan, is one of the standard tools present by default in the Metatrader terminal.
The Gann fan indicator includes a sequence of straight lines that are built at different angles with the base at the turning point. The resulting picture resembles a fan, from which came the name of the instrument. Each of these lines, when prices approach it, indicates possible levels of support or resistance.
William Gann notes that his indicator cannot fully predict that the market will change direction. It only shows the moments in which there is the highest probability of a reversal or consolidation of the market.
The widespread use of Gann angles in the framework of analytical work on the market is one of the most popular and, at the same time, complex methods of technical analysis. Nevertheless, the skills of structural assessment and forecasting of the dynamics of the foreign exchange market, based on the theory of angles of William Gunn, are demanded tools in the inventory of each professional trader. It is worth mentioning that the Hannah angles are often confused with trend lines, which, however, is not so, despite the characteristic similarity.
The key differences between the Gann line and the trend line are that the Gann line is characterized by dynamic properties that allow it to move along the x-axis (vertical axis) and y-axis (horizontal), which opens up wider functionality for the trader. For example, you can analyze an asset through graphs, due to which you can determine the angles of fluctuations of a market instrument and, then, indicate the limits of its dynamics.
The key postulates of market dynamics in the framework of the Hann theory are the following markers:
- Price, time and range of market fluctuations;
- The geometric structure of the foreign exchange market, the analysis of which allows us to predict the factors of the further development of its dynamics;
- The fundamentally cyclical nature of market dynamics.
Gann compared the nature of the market with the nature of man, analyzing the past and present of which one can draw a number of necessary conclusions regarding his future.
How the Fan Gunn is put into practice
Now is the time to tell how the Gann angles are applied in practice.
The peculiarity of the application of Gann theory in practice is that it focuses on two classical models for its theory, designed to help the trader in predicting market movement:
- A study time model that involves fixing cyclically repeated dates;
- Price range model, which includes support and resistance lines, as well as pivot points.
Since such practices require a deep knowledge and experience from the trader, we note the most significant technical points that must be remembered in the first place.
The trader needs to decide on the models that he will use when analyzing the market with the help of the Gann fan. The most common of these are models 1, 1 × 2 and 2x1, each of which implies a certain slope of the lines. However, among these models and, accordingly, there are much more angles:
- 1 × 1 - 45 degrees
- 1 × 2 - 63.75 degrees
- 1 × 3 - 71.25 degrees
- 1 × 4 - 75 degrees
- 1 × 8 - 82.5 degrees
- 2 × 1 - 26.25 degrees
- 4 × 1 - 15 degrees
- 8 × 1 - 1.5 degrees
There is nothing complicated in these variables: the first of them corresponds to a unit of time, the second to a unit of price, and the formula, respectively, displays the ratio of price and time period.
Of particular note is the 45 degree model, also known as 1 × 1.
According to Gann, the 1 × 1 line is a line of a long-term trend: upward or downward. In this model, the position of the price above the rising line indicates a bullish trend, and under the downtrend about a bearish trend, respectively. The disposition of the line crossing the price informs about the impending change in the trend. It is important to emphasize that the 1: 1 line is a balance between the price and time ranges. A common occurrence in the market is when the price approaches the line, then time and price are balanced.
A line constructed as part of a 2 x 1 relationship reports that over two units of time, the price has changed by one unit. Accordingly, if you work with a 4 x 1 line, then the unit of price becomes proportional to four units of time.
How to Build Gann Angles on a Chart
Let's try to apply the Gann angles (Fan Gann) in practice. Gann angles are plotted from the top of the trend. In this case, this is the lowest point. We are building a 1x1 line at an angle of 45 degrees. How to determine the angle of 45 degrees? Very simple. Under this line, you will immediately begin contact with the trend. It is almost impossible to make a mistake with the construction of the angle. All other lines are pulled automatically.
Note! Once built, this fan has a large number of points of contact and contact with the trend in the future. In other words, these angles can be used as an additional tool for technical analysis in the form of support and resistance levels. Trading with the use of only one thing - this tool, we strongly do not recommend.
Also, the Hann theory has a number of similarities with fan lines based on Fibo coefficients. In light of the market moving up or down, angles are transformed within the existing trend, forming resistance and support levels.
As you can already understand, this tool is not associated with any special trading strategies, but it can serve as a good additional tool for determining support / resistance levels, as well as pivot points of trends.
One more key - look for discrepancies of time and price. Price will always strive for the middle line.