Gann Theory is a market forecasting method proposed by the legendary trader W.D. Gann in the early 20th century. Its core idea is that price and time have a geometric proportional relationship, and market behavior is predictable because it follows mathematical, geometric, and natural laws.

1. Core Principles

Gann Theory is based on several key beliefs:

• Market behavior is cyclical, and price changes have specific angles and proportions in time and space.
• The equilibrium point of price and time determines important market turning points.
• Market trends will fluctuate according to quantifiable angles and geometric structures.

1. Detailed Explanation of Gann Tools

• Gann Angles

Definition: Gann angles are analytical tools that unify price and time into a geometric angle. The most important angle is the 1×1 line, meaning one unit of price rise/fall per unit of time, forming a 45-degree angle.

Key angles include:

• 1×1 (45°): The main trend line; the market is bullish above it and turns bearish if it breaks below.
• 1×2 (26.25°), 2×1 (63.75°): Auxiliary support and resistance.
• 1×8, 8×1: Short-term extreme movement boundaries.

Usage Tips:

• Draw angle lines from significant highs or lows and observe the interaction of price with different angle lines.
• Trend strength can be judged by the price\’s position relative to the 1×1 line.

• Gann Grid

Definition: A grid constructed based on specific high and low points, used to capture price movement paths and time cycles.

Functions:

• Capture support/resistance zones.
• Capture time cycle symmetry points (e.g., the 30th, 90th, 180th day from a low point).
• Predict trend reversal areas.

• Gann Time Cycles

Gann believed that key market turning points often occur after specific time cycles, such as:

• 30, 60, 90, 120, 180, 240, 360-day cycles.
• Long-term cycles calculated based on natural cycles (like solar and lunar movements).

Usage Tips:

• Calculate key time nodes starting from extreme highs or lows.
• Be particularly alert for reversal signals when prices approach the critical points of Gann time cycles.

1. Practical Application Example

Assume a stock hits a low of 100 yuan on January 1st:

• 1×1 angle line indication: Rises 1 yuan per trading day, theoretical target price after 45 days is 145 yuan.
• Time cycle indication: The 90th trading day may be a trend reversal window; confirm with technical indicators whether to reduce positions.
• Gann Grid can help identify static resistance levels at 120 yuan and 130 yuan, guiding partial profit-taking.

1. Synergistic Use of Gann Theory with Other Techniques

It is recommended to combine with the following tools:

• Fibonacci Retracement/Extension: Confirm if Gann time points and Fibonacci price targets resonate.
• Volume Indicators (e.g., OBV, CMF): Determine if there is volume divergence at Gann angle lines.
• Trend Lines and Moving Average Systems: Build a multi-layer confirmation system to improve trading win rates.

1. Limitations and Risk Management

• Gann Theory has a certain degree of subjectivity and requires high accuracy in selecting “starting points.”
• It is not recommended to rely on it solely; confirmation with price action is needed.
• It is advisable to set stop-loss or take-profit points at key time windows to cope with unexpected fluctuations.

1. Summary

Gann Theory emphasizes that “time is more important than price,” providing a geometric and cyclical perspective to trading. Through precise time deduction and angle structure analysis, traders can identify structural trends and turning points amidst market noise. Although the learning curve is steep, when Gann Theory is integrated with other analytical tools, it becomes a highly forward-looking decision support tool.