In order to let readers better understand the principle of Gann's angle line, let's first show the abstract of a paper in which Gann once disclosed his trading secrets:
I soon began to notice the cyclical phenomenon of price fluctuation in the stock market and futures market, which led me to conclude that the laws of nature are the basis of market movement. After careful scientific analysis and investigation, I found that the law of fluctuation enables me to accurately determine some positions where the price of the stock market or futures market will rise or fall in a given time. The law of fluctuation determines the cause and predicts the result, which can be done long before Wall Street knows the cause and result. Most investors will admit that only paying attention to the results and ignoring the reasons will often make them suffer losses.
It is almost impossible to give a suitable explanation for the fluctuation law I applied to the market. However, laymen may understand its basic principles. In my opinion, the wave law is the basic law on which wireless telephones, wireless telegrams and tape recorders are based. Without the existence of this basic law, these inventions would be impossible.
Look at the history of the market and many related statistics. Obviously, there is a definite law that controls the change of stock price, and there is a cyclical law that supports all these changes. Observations show that there is a very active trading stage, followed by a less active stage. Recently, Mr. Henry Hall used a lot of space in his book to describe the "cycle of prosperity and depression", and he found that the two appeared repeatedly at regular intervals. The fluctuation law I am talking about here is not only used for long-term cycles and fluctuations, but also for the daily or even hourly trend of the stock market. Knowing the exact fluctuation of a stock, I can determine where each stock will be supported and where it will be resisted.
Close contact with the market noticed ebb tide and flood tide, or the rise and fall of stock price. At some point, a stock becomes very active and has a high turnover rate; At other times, the same stock becomes quiet, or inactive, with only a few sales. I found that the law of wave dominates and controls these. I also find that the fluctuation law dominates the rise of the stock market at a certain stage and manipulates the decline of the stock market at a completely different stage.
I also found that the stock market itself has a harmonious and disharmonious relationship, which can promote the market. Therefore, the secrets of these behaviors become obvious. Through my own method, I can determine the fluctuation of each stock, and by analyzing some time values, I can also accurately predict the trend of the stock in most cases under given circumstances.
The ability to determine the market trend comes from my understanding of the characteristics of certain opportunities in each stock and different stocks, and these opportunities have appropriate volatility. Stocks, like electrons, atoms and molecules, stubbornly preserve their unique personality and abide by the basic laws of fluctuations. Science also tells us that "any form of primitive power will eventually break down into periodic or rhythmic movements". Also, "it's like a pendulum swinging back to its original position, like the moon returning to its own orbit, like a rose blooming again next spring, and its characteristics reappear periodically with the increase of atomic weight, that's all." Through strict observation, research and application testing, I found that not only all kinds of stocks are volatile, but also the driving force to control them. The power of these fluctuations can only be reflected in their effects on stocks, trends and market value, because all major fluctuations in the market are cyclical. So they follow the periodic law.
If we want to avoid speculation failure, we must explore many reasons. Everything that exists follows a certain proportion and a perfect relationship. There is no exception in nature, because the supreme mathematical principle lays the foundation for everything. Faraday said: "Of all things in Ningzhou, only the power of mathematics is sublime."
According to the law of fluctuation, every stock in the market moves in its own different category. For example, trading activity, volume and direction, the basic characteristics of their respective progress and evolution are all caused by their respective volatility. Stocks, like atoms, are the center of energy, so they are also controlled by mathematical laws. Stocks create their own activities and strength. This force is sometimes attractive and sometimes repulsive, which explains in principle why a certain stock leads the market at one time and becomes silent at another. So for scientific speculation, the most fundamental thing is to abide by the laws of nature.
After several years of patient research, I have completely proved to myself and showed the argument to other participants: volatility explains all possible stages and conditions in the market.
This excerpt gives a clear concept-fluctuation is the most basic factor affecting the market. The concept of market fluctuation put forward by Gann, on the one hand, directly involves how to make Gann's angle line, which is a problem that many readers and market participants are very concerned about; On the other hand, volatility is also related to the unique main map invented by Gann. For example, the difference between each adjacent number in Gann Square actually represents the volatility of the target market.
When making the price chart, if the coordinate system we choose meets certain conditions, then the Gann angle line will conform to a specific geometric relationship, which is very important. In Gann style chart analysis, we attach great importance to price. According to the geometric relationship of the graph, it is considered that the price movement of the market conforms to certain geometric laws. If the graph is drawn according to these geometric laws, the graph can correctly reflect the geometric relationship of the future market, so it is predicted that the optimized unit price and the optimized coordinate system should meet the following relationship: volatility = unit price = scale value.
What is the volatility?
How is the volatility obtained? Here we describe the concept of market volatility as: the extent of price rise or fall per unit time in a certain market. There is also a view that volatility refers to how many cycles it runs in each period of time, which is a representative frequency. Perhaps the difference between the two statements is only the difference in methods.
There is a concept that can't be ignored, that is, unit time, which is related to the value of the time axis of the chart. In this way, the topic turned to the chart again. In fact, chart is the graphic carrier of market movement, and its form often becomes the basis of analysis. It can be said that the technical analysis of the market begins with the correct construction of the chart. What is "building a chart correctly"? This involves how you plan to record the price movement of the market, or build a suitable chart according to your trading strategy. When it comes to strategy, it seems empty. Actually, it is not. Once entering the market, it will face a series of problems. Are you going to leave the market after short-term speculation, hold it in the medium term, or even invest for a long time as a preparation for future housing purchase, children's education and old-age security? How much loss can you bear, etc. , and trading in the market is a wise move. These problems should be comprehensively considered and specifically planned. Although there will be some new experiences and understandings in the transaction process, the scheme will be gradually revised and improved to make it more reasonable. Simply put, if you plan to be a short-term trader, then you may be concerned about the short-term chart of the market, and if you plan to be a long-term investor, then you are concerned about the long-term chart of the market. There are various charts with different time divisions, such as the most common daily chart with the trading day as the time unit. We might as well divide the chart like this. Instant charts, that is, time-sharing charts, such as hour charts, half-hour charts, 15-minute charts or 5-minute charts, are short-term charts, while daily charts and weekly charts are medium-term charts. Monthly charts, seasonal charts and annual charts are all long-term charts. Of course, this division is quite subjective, and there are different divisions due to different markets. For example, in the futures and foreign exchange markets, the trend of time is obviously different from that in the stock market and more urgent. In this way, market participants may pay special attention to a certain kind of chart according to their trading and investment strategies. On the other hand, it is inevitable to refer to other types of charts, but in specific transactions, short-term charts such as daily charts and weekly charts are often used to grasp the best trading opportunity. Therefore, it is suggested that technical analysts make and keep several short-term, medium-term and long-term charts seriously and continuously.
Obviously, market fluctuations are reflected in different types of charts, and their values are also different. A very simple example is that the volatility of a stock in the monthly chart is 2 yuan, which means that it rises or falls by 2 yuan on average per unit time. In the daily chart, it is obvious that the price fluctuation per unit time, that is, every trading day, is unlikely to be 2 yuan, but it is not necessary to divide the 2 yuan by the number of trading days in a month to get the daily chart volatility, which should be noted.
The concept of fluctuation is mysterious in Gann's works. Gann did not give a detailed and exact explanation, leaving many guesses for the latecomers. We can see this in many of Gann's works. However, we should consider that Gann actually tries to reflect the market volatility with Gann angle line lx 1, while 1x2 line and 2x 1 line reflect the market behavior of acceleration and deceleration respectively.
Algorithm for determining market unit price
The simplest way to determine the market unit price is to take the distance from top to bottom or from bottom to bottom, and then divide it by the time from top to bottom or from bottom to bottom. The rate at which an uptrend line or a downtrend line is generated.
The speed value obtained by dividing the distance between two important bottoms by the time interval between two important bottoms is the Gann price scale, or the unit price of Gann angle line. The same calculation formula can also be applied to the calculation between important vertices. Once a series of such unit prices are determined, the transaction can determine their average and round them off.
Upward unit price = second bottom-first bottom/time interval between two bottoms
Unit price of downtrend = time interval between the first top, the second top and the two tops.
scale
Gann angle line moves at a specific rate, so it is extremely sensitive to the values and proportions of price scale and time scale in the coordinate system where the chart is located. In order to adapt to all possible prices under normal circumstances, the chart must be drawn in an appropriate proportion. As mentioned above, each market has its own unique volatility, which is reflected in the chart as the scale number of unit price or the axis of price. According to the coordinate system determined by its own volatility, the graphic lines are ultimately in line with the geometric laws of market prices. That is to say, in the design of coordinate system, we should pick up the geometric law reflecting the market price, and the lines drawn in such coordinate system also conform to the geometric law.
Gann map pays attention to the choice of price scale, which is convenient to reach agreement with geometric form. When the market is trading at a very low price level. Choose a smaller price unit. When the market trades at a high price, choose a larger price unit.
One rule is to choose the price unit that is in line with geometric series and directly related to the price level, so that the geometric angle line can measure the price and time in the right way. For daily chart, weekly chart or monthly chart, the price scale conforming to geometric rules can be one of the following forms:
1-2-4
1-4-8
2-4-8
4-8- 16
1/8- 1/4- 1/2
0. 10-0.20-0.40
0.20-0.40-0.80
0. 125-0.25 - 0.50
0.25-0.50- 1
4/32-8/32- 16/32
In addition, it is recorded that Gann used only one form of chart paper, eight squares per inch, from 1904 until his death in 1955. The fourth line is the weighted line. He chose this graphic paper because of its geometric design. Other five lines or 10 lines of grid paper are not accepted.
Gann angle line is a function of price and time, so the ratio of price scale to time scale is very important. Gann angle lines move at a specific speed, and what value they will reach can be expected. This is why the appropriate price scale should be used-if there is something wrong with the scale, the forecast will be biased.