How to trade with the Gann Fan indicator

Every successful trader is familiar with the works of the legendary William Gann. Well, or at least with the basics of his theory. The “financial astrologer”, as his contemporaries called him, made very accurate predictions. By the way, Gann made over 50 million dollars trading stocks and currency. Therefore, his ideas are profitable and credible. Keep on reading this article, as we will examine the features of the Gann fan and the possibilities of its application in trading.

Gann’s theory

Gann used the following rules for trading:

• each trading session is cyclical.
• the basis of the analysis is price fluctuations on different timeframes.
• any change in the quotation over a certain period of time can easily be displayed as a geometric figure.

Gann’s line is the key to building an author's strategy. The line is drawn in the form of a diagonal of a 1x1 square, where the sides are time and cost. An angle of 45 ° is used for displaying the balance of time and price. Using the Gann line, we can determine the price trend in the future. If the quotes are located below this line, this is a signal of a downtrend, if above - of an upward trend.

Gann fan

In general, these are rays emanating in different directions from one point. The 1x1 line is the main edge. It can be used to determine in which direction the trend will change. Other rays (edges) are analogous to filters. A downward breakout of the main edge quote indicates that the probability of a 1x2 edge increases at the next moment, etc.

How utilize Gann fan?

To build a graph, we should select 2 points that characterize the trend. The first is located either at the bottom of the chart or at its top, or at the start of a new wave. To choose the second one, we have to focus on the direction of the trend, which passes through the subsequent local Maximum or Minimum. There are 9 lines (rays) in the fan in total. The most important are 1x1 (an angle of 45 °) and 2 auxiliary ones - 2x1 (26.25°) and 1x2 (63.75°)

Building a Gann Fan

There are many applications on the Internet that you can use to build this figure. You can also draw the Gann fan in the MetaTrader trading platform. If you are in the MetaTrader 4 for example, click on the "Insert" menu, then "Gann" - "Gann Fan". Select the extremum and move the cursor to the 2 points described previously, while holding the left mouse button. Then the program will build the necessary Gann fan indicator by itself.

It is better to set a larger timeframe, from М15-М30 and higher. For small quotes, it is better to make an adjustment. Open the “Parameters” tab of the Gann fan indicator, then “Object Properties” and fill in the coordinates of the first point - date and value (cost). Then we set the date of the final point. When choosing “Pips per bar” - set the step with which the quote changes. The default trend is bullish, if we need bearish, we change the settings. Now you should analyze the extremes, i.e. support and resistance levels.

Thanks to the Gann angle, we can determine the dynamic amplitude of price fluctuations, the time of opening and closing a deal. First, we determine the opening point of the deal. If we see the price touching the line in the direction that is the opposite of the trend, most likely there will be a reversal. Take Profit should be placed near the quote line, while Stop Loss should be placed over one ray.

If the line is crossed by the price, 2 options are possible:

1. Set Take Profit on the next ray following the movement of the quote in case the next ray will be touched. Set Stop Loss on the first ray that is on the opposite side from the Take Profit
2. Wait for a rollback to determine the trend. Set Take Profit on the next ray, Stop Loss - through one ray, but in the other direction.
3. Both variants are profitable but the first one is riskier. If you enjoy this trading method, make sure to read the book "How to Make Profits in Commodities" by William Gann.