Using Gann Angles in the Forex
There are several technical analysis tools that can help a technician and trader forecast market trends. These include Stochastics, Parabolic indicators and MACD. But few are as efficient and accurate as Gann Angles.
Gann Angles is one of the most precise analytical instruments in determining the movement and sustainability of forex trends and prices. Some forex traders hesitate to use it because of its complexity; however, the basics of the Gann Angles can be set down as follows:
On a square grid, a horizontal line (the x axis) is inserted, representing units of time. On the y axis (the vertical) a line is also drawn, denoting units of price. The time period specified can be of any duration, but the usual period used is weekly.
As the price moves in accordance with the time line, the point at which they meet is referred to as the Gann Angle. In a 1x1 setup, the angel is 45 degrees. It is the angles that the time and price form in several Gann Angles that are the subject of study in forex technical analysis. It should be emphasized that the relationship between the time period and the price movement must be plotted accurately for a proper reading.
How does this help a forex trader?
In general terms, the angles at which the price and time converge indicate the strength of the trend. For instance, a 45 degree angle is considered "ideal", as it indicates that there is a strong support level for the current trend. If the x axis moves past a significant Pivot Point (a high or low price level) then it is a sign that either the trend will continue or that it will change.
As the trend changes, it will move on to the next angle, 26.25 degrees (2x1). Because the support level for the 1x1 Gann Angle is strong, a downward move to the 2x1 connotes that the forex trend will also remain in that state for a significant period.
It should be emphasized here that while the 1x1 angle is considered the standard or ideal forex trend state, it is not always applicable. In technical analysis of bullish markets, a 1x4 angle is more suitable. The efficiency of Gann angles in forex technical analysis is also dependent on the financial instrument being scrutinized.
Another way to use Gann Angles in forex technical analysis is to search for levels of resistance and support in the pertinent price movements in the x axis. By separating the highs and lows, a trader can find the levels he needs to determine possible price trends. Another asset of Gann Angles in forex technical analysis is that by establishing the Pivot Points a trader will have a fairly good idea of the general foerx trend movement.
Gann Angles take time to learn, perhaps more so than other technical analysis tools. But the time spent will be worth it, as when it is correctly implemented, Gann Angles can give the forex trader a distinct advantage in trading.
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