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Who was W.H. Gann?
It should be mentioned from the beginning that Gann tools that are available on any trading platform are coming from W.H.Gann as he was one of the greatest traders that ever lived and his work in the technical analysis field is recognized worldwide. The Gann Fan indicator is a great tool in finding out important support and resistance levels and, therefore, a tool for spotting places to buy call or put options depending if the indicator is used in a bearish or a bullish market.
Gann worked with angles and he was a true believer that every financial instrument has its own and unique way of moving, respecting specific angles.
Therefore, the notion of the 1×1 angle appears and the Gann fan instrument is based on it. It is these angles that made him famous but not only as his work in the technical analysis field was simply amazing.
Going to any trading platform and you’ll notice that, for example in the Metatrader, the most popular trading platform in the world, if you click the Insert tab, and the third button from the top is the Gann button. Clicking on it, will show three different Gann tools, like Gann Line, Gann Fan and Gann Grid. The Gann line is pretty simple to use and the Gann Grid is basically splitting the screen into different equal boxes with the presumption that will define both the time and the price to be reached somewhere in the future.
Gann fan is the one indicator that uses the 1×1 line and that is the center of any analysis drawn from this indicator. However, while the 1×1 line is the heart of the indicator, there are other lines to be used as well: 1×2, 1×3, etc and the further price is moving from the main 1×1 line, the weaker the support and resistance level is becoming.
Gann is also famous for its square as it is uses values based on Fibonacci numbers into a Gann Square and the purpose is to find out the number/value that represents the core value of each and every tradable asset.
The thing is that Gann was the first one to ever come to put together the concept of price and time together as in trading it is vital to know not only where price is going but also when the move is going to come. This is even more important in binary trading as the expiration date is a key factor in the success of an option, as important as the striking price.
The 1×1 Gann Fan line can also be used to project future price and resistance levels and by the time market is breaking one to the upside, then it turns into support and the new one projected on the right side of the chart should offer resistance. Time is an issue in trading and besides Gann, who was the first one to put the two together, Elliott Waves Theory offers the possibility to incorporate time into any analysis.
For example, in contracting triangle, it is a known thing now that the b-d trend line needs to be broken in less than the time taken for the e wave to form, regardless of the type of the triangle, bullish or bearish, contracting or expanding. This rule is valid for all triangles and in this case time is even more important than price as only after we have the confirmation that the time element was respected when the b-d trend line was broken.
One of the major advantages of the Gann Fan indicator comes from the fact that it is acting, like the Pitchfork tool as well, as a dynamic support and resistance tool. Dynamic support and resistance is acting like a classical one but only this time it is not horizontal, like the classical one is, but it comes with a specific angle, bullish or bearish. This is where the Gann Fan indicator comes in handy as this angle, even if price makes a new high when compared with the previous one, may still act as a resistance, or as a support if price is actually making a new low.
Our Forex Trading Academy has an article dedicated to dynamic support and resistance levels as well as to Pitchfork so much about trading forex with the Gann Fan tool can be taken from there.
Gann Fan Angles
As a rule of thumb, in a bullish or a rising Gann Fan, BUY contracts/ CALL options are favored each and every time market is testing the secondary lines (1×2, 1×3, etc) while in a bearish or falling Gann Fan, SELL CFDs / PUT options are favored as market is testing the secondary lines as this time they should act as resistance.
Details regarding where to find the Gann Fan indicator and how to apply it on a chart and interpret market based on it are in the two videos we added to this article.