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I have written before (in Issue 317) on the subject of what are called Geometric Angles or Gann Angles. These are part of the 3rd dimension of Gann analysis, also known as ‘squaring time and price.’ If this sounds totally confusing, don’t worry. Think of a simple trend line. It is a line joining 2 tops or 2 bottoms and extended forward. The difference with a Gann angle is that it moves at a fixed rate and is thus not dependent on a second top or bottom in order for you to draw the line. You may find it helpful to review the earlier article.
The simplicity of a geometric or Gann angle is that a 1 x 1 angle moves one unit of price in one unit of time. This would mean that it rises at a rate of 1c every day. Angles can be drawn on either calendar day or trading day charts.
Angles From October 2008 Low
click to enlarge
In Chart 1 we are revisiting a chart that you may remember from Issue 317. We were watching these same angles in July 2009. But look how closely the market has followed these angles since then, and right up to the present time.
I have labelled on the chart a number of the turns that these angles helped to identify. If you spend the time studying it you’ll see that there is more information than is written on the chart. Notice, for example, that during February and March 2009 the market held consistently above the 4 x 1 angle, which moves 4c per trading day. This showed that the market was in a strong position.
One of the rules of angles is that when the market falls below an angle, it will generally continue to the next angle. So when the market broke the 2 x 1 angle in early December 2009 you could already have been watching the 1 x 1 angle as the next level where it might find support. If you go back to the article in Issue 350 you can see the price reasons why the market stopped falling on 1 February. But if you combine that with Chart 1 above you can see why the market went sideways before making another low at the same level on 26 February. The market had reached its target price level early and had to wait for time to catch up with price. The Gann angles indicate when time and price have balanced.
Now for some fun. In David Bowden’s Ultimate Gann Course there is a lesson from Gann entitled Auburn Motors. Gann says in it that ‘the intersection of two right angles is very important for a change in trend.’ When Gann traded in the early years of the 20th Century there were of course no computers, and all charts had to be drawn by hand. Gann drew his charts so that the price and time scales matched. This meant that a 1 x 1 angle would appear as a 45° angle. Therefore, a 1 x 1 angle drawn up from a low would make a right angle with a 1 x 1 angle drawn down from a high when they crossed.
In Chart 2 we have two such 1 x 1 angles from the major high and low of the last few years in Santos, this time drawn on a calendar day chart.
Chart 2 – Intersection of Angles
click to enlarge
As you can see, these angles crossed on 26 February, the exact date of the triple bottom. The place where the angles cross isn’t important; it is the date that we are interested in.
Combined with the indications we looked at in the last article, you would indeed be confident trading long out of this low – at least till it reached the 1 x 1 from the low on 15 March!
Knowledge is Power!
Tim Walker
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