Trader's World Magazine Article
How to Forecast Like W. D. Gann
W.D. Gann was famous for his forecasts, both during his lifetime and throughout the 70 years since his death. And he left behind quite a lot of material to teach his methods to others. Most of these lessons survive, but they tend to lack a crucial element – the charts. Since he tended to explain his charts in considerable detail, their absence creates a difficulty for students trying to follow his teachings. For while a picture speaks a thousand words, it often doesn’t follow that a thousand words are sufficient to paint a picture.
Driven largely by frustration at all the holes in his explanations resulting from this, I have over the years, and with a lot of help, managed to piece together the price data enabling many of these charts to be re-created. And so, theveil has been drawn back somewhat and continues to be pulled further as the sequence of Gann’s courses are passed through and updated with this critical material.
Many people would say that the 1930’s are a world apart from the 2020’s, and yet many of the observations that Gann wrote about nearly a century ago work just as well today as they ever did. The reason for this is that markets are still made up of people – even an algorithm or a trading bot had its origins in the mind of a person – and human nature does not change very much over time.
Also, Gann’s primary focus was mathematics, and mathematical principles don’t change at all over time, because they are attempts to measure accurately the forces and laws which operate throughout the universe. Where Gann was a pioneer was in recognising that it was these forces which drove the movement of prices up and down.
I could show you some of the charts that Gann used to illustrate his principles, but the obvious objection would be that either he fitted the rules to what the market had done, or that what worked then wouldn’t necessarily work today. So instead, I will pick a market that didn’t exist in Gann’s time and give a few examples of his forecasting rules to demonstrate how they still work.
We think of a price chart as being comprised of two elements – price and time. Gann introduced the concept that these two are not completely separate but are instead related. A movement of, say, $45 in the price of a stock which took 45 weeks would show a balance between price and time, and when markets reach these balancing points, there is a tendency for them to reverse direction. I say, ‘a tendency’, because there is no such thing as a rule that works a hundred percent of the time in the markets. Many factors combine, including the pattern on the chart, the volume of buying and selling, resistance levels from previous tops and bottoms, and so on.
There are also cyclic factors in the movement of prices. Soybeans makes a lot of lows in October, not because there is any magic in that time of the year, but because that’s when the crops are harvested. Tax time, budget time, company announcements, and many other things besides these also have their influence. And for whatever reason, the changing seasons often coincide with tops and bottoms.
Consider this weekly chart of the Australian stock index futures contract, known as the Share Price Index or SPI:
If you spend some time studying the dates, a lot of relationships will appear between them. Start with what Gann called ‘seasonal’ dates, those dates of the year when the seasons change (21 March, 21 June, 22 September, 21 December). A few of those appear on the chart. You can also count 3, 4, 6 or 12 months ahead from a previous turn to forecast a future turn. The first turn is the top on 16 August 2021. If you watched this date the following year, you were only 3 days off the 19 August 2022 top, and the market held three weeks at that level, so you had plenty of time to do something about it.
Similarly, the high on 5 January 2022 was followed a year later by a low on 3 January 2023, and the high on 20 April 2022 by a top on 17 April 2023. Or sometimes, the turn comes 3, 4 or 6 months later. Check out 31 May and 6 December 2022, or 28 July and 30 October 2023. There are more examples if you want to look for them.
On its own, however, this information is not sufficient. By no means do all important turns produce another turn a year later or even at all. These dates give a time to watch, though we need more indications. In a lesson which Gann called The Basis of My Method of Forecasting, he gives all the rules for drawing what have come to be called ‘Gann angles’, but which he called geometric angles. These combine price and time and are very powerful for calling future turns.
Look at the same weekly chart with some of these angles drawn:
The names of the angles are written as Price x Time – that is, 1 x 4 means 1 unit of price by 4 units of time. I have drawn only three of them on the chart to illustrate some of the types of angles Gann used. Looking first at the low on 20 June 2022, which is the lowest point on this chart, the 1 x 4 angle had already shown some value when price held just above it on 3 October. This is the first point – the angles show resistance levels; price may hit them exactly and reverse, penetrate them and then reverse, or hold up just short of them. All these have meaning.
There is also a red line converging at the 30 October 2023 low, and this angle is a 1 x 2 angle drawn down from the low on 10 July. If a low is broken, we draw angles down from it to show points where price might subsequently find support. We also saw earlier that this low on 30 October was 3 months from the high on 28 July, so our plot thickens, as it were. It is when you see several of these factors coming together that you can be prepared to act, for many of them are available well in advance of the actual event.
The final angle is a 1 x 1, which shows 1 unit of price and 1 unit of time. Gann called this a 45° angle, and in the days when people kept their charts by hand, you would make sure that your scales correlated so that this angle was a true 45° diagonal. This kept the chart in a balanced perspective. The angle down from the high on 6 February 2023, which in mid-December remains the high of the year, wouldn’t have enabled you to forecast the low on 10 July. In this case, the angle showed how the market was behaving, slowly working its way lower in a steady manner.
These angles are not solely for forecasting turns; another of their uses is to show whether the market is in a strong or a weak position. Or they can help for managing stop loss orders – a stop behind an angle will only be hit if the angle is broken, and that indicates a change in trend. This is a way to manage trailing stops in an advancing or declining market, without having to place them behind tops and bottoms where other traders might go fishing.
Another technique that Gann covered in his lessons on how to forecast where what he called ‘natural’ numbers. Every trader knows that a previous high can be resistance and a previous low can be support, and that 50% between them can be a reversal point. But Gann argued that there are other numbers, which are not specific to any one market, but which occur naturally, and also act as support and resistance. The two most important ones that he used were the 360-degrees of the circle and the squares of numbers – 4² = 16, and so on. Here is a monthly chart showing the same period of the market from 2021 to 2023:
This chart shows another type of angle, one that is drawn from a price of 0 at the time of a major high or low. On the monthly chart, these angles are of huge importance, as we see even from these few examples. A major bull market started in March 2003. The 1 x 1 or 45° angle drawn from the price of 0 took some years to catch up with price, but when it did, in February 2016, the low of the year was made and ended a year-long bear market.
The next angle from 0, drawn at the time of the end of that bull market in October 2007, held price at the end of the Covid decline in March 2020. Yes, the low also coincided with the US Federal Reserve stepping in to support the economy, but as price was in freefall, you would be watching these angles.
On the morning of Monday 23 March 2020, price gapped down 200 points on the open and immediately started to rally. You didn’t have to be brave enough to buy there, but if you were short, here was a perfect opportunity to take profits very close to the end of the move.
Two more angles are shown here. They are again 45° angles, but this time drawn from lows. March 2009 was another major bear market low, and the angle from this low called umpteen tops and bottoms during the next decade, including the Covid top in February 2020 and the top in August 2021 which comes at the beginning of the weekly chart we studied earlier.
The other angle is drawn from a minor low in September 2020. Its importance is that it was the next higher bottom on the monthly chart after March 2020. This angle picked up the low in June 2022, and also the most recent low on 30 October 2023, which we also saw on the weekly chart. When charts on several time frames show support at a particular point, the odds are even greater that the market is going to reverse there.
Finally, there are two dotted lines drawn across the top of the chart, and these illustrate the natural numbers that Gann talked about. Here is the mathematics:
• 360 x 21 = 7560
• 87² = 7569
Any multiple of 360 is a potential resistance level, as is the square of any number. It so happens that in this instance the two generate numbers very close together. The first high in August 2021 not only hit the 1 x 1 angle from March 2009, its price of 7559 was virtually exactly on this natural resistance level. Obviously, the same applies to the subsequent highs which made a double and then a triple top at this level. And the coming together of these factors is one reason why the Australian stock market has struggled to break through to higher prices.
There are, of course, many other techniques that Gann taught in what he called his Master Forecasting Course. One more as we finish. He said that cycles of 10, 20, 30 years and so on are important for future turns. The high in August 2021 was 10 years from another important low in August 2011. Sometimes you have to allow a bit of leeway – the last of the triple tops, in April 2022 (see the weekly chart), was 20 years from a high in March 2022.
The low that followed in June 2022 was only 3 weeks off an exact 40 years from a major low in July 1982. And if you really like some history, the Dow made a very important top in November 1919, and the Covid top in February 2020 was just 3 months past the 100th anniversary of this high.
How about a forecast to finish with? As I’m writing in mid-December 2023, price is advancing strongly, but note that it is approaching the 1 x 1 angle from “0” in March 2003. This is a monthly chart, so the bar will not be complete until 31 December, but in order to get back to the high levels around 7560, it has to get through that angle first. Even if it can manage this, the angle will cross the natural resistance levels around 7560 in February 2024. Look what happened the last time a monthly angle did this, in August 2021.
I won’t tell you that this market is definitely going to reverse there, but I will say this: I will be watching it very carefully as price nears this level, and if other factors come together in January or February 2024, I’ll be ready to act on them.
All I am using here are the techniques which Gann taught in his forecasting lessons, and if these interest you, I’ve written them up in a new book, complete with all the charts, called How to Forecast Like W.D. Gann. My intention with this new series on Gann’s forecasting lessons is to lay out with complete clarity and detailed explanations exactly what Gann taught in these lessons, and to supplement them with the long missing charts, data and references that have been missing in all publications since Gann’s death.
