August Commentary

This month I will comment the use of Gann Angles and the specific difficulty when used with graphs that adjust the bar spacing automatically. Gann Angles require that for a move of one unit of time, you plot a move of one unit of price; this angle is a 1X1 and you have other angles ranging from 1X2 to 3X2.The important rule is to adhere to the proportions given by Gann which can be very difficult to plot if you must indicate the beginning and the end point (the later moving at each new bar added to the graph). The second problem is indicating which of all the angles, you want to plot. To define the angle you must specify the run and the rise (unit of time=run unit of price=rise). AlphOmega has an indicator that allows you to do just that and where you input the starting date, including hours and minutes (because it also works on intra-day data), the rise and run and the number of angles to display. The result is shown on the chart below.

 

 

Click on the image to enlarge.

The angles are pretty steep but fit exactly Gann proportions even if we zoom in or out. Now from a trading standpoint, it is interesting to see that the top of wave 0ne in brackets is almost on the angle line. We will see in the next few days if the support, represented by the smallest angle, will hold wave two retracement. Then the wave three should test another time the angle that contained wave one. Of course, it is already pretty steep so if price does not move up in the next few days, this target will be too aggressive. The line in between could become the new resistance level. If you noticed, no reference has been made yet to the Fibonacci ratios. Gann is really sticking to geometry as we took it in school. However, nothing prevents us from using Fibonacci as a backup with Gann techniques. Although the basis for projection of target is different, the Elliott and the Gann techniques work very well together. Actually Gann breaks in smaller steps, the progress of powerful waves. What is difficult with Gann is the choice of the run and the rise. When he says that for one unit of time (one bar or one day on a daily chart) you must have a rise of one unit of price (one dollar!), this unit of price has to be adjusted to the reality of the security we are dealing with. Thus one unit of price may be one eight of a dollar or even less; here we are left on our own to make a choice. The guidance he gave us was that graphically, the rise and the run should form a square (two sides of it) to make the angles look correct.

For those who did not know, Dennis Peterson from Technical Analysis of Stocks and Commodities has done an excellent review of AlphOmega Elliott Waves. His article is so well written that the whole technique looks simple. It is in the August issue and it is worth the reading.