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Aaron Lynch
One the of “foundation” stones of Gann analysis is the ability to analyse time frames in a market. Gann analysis has sometimes been maligned for a crystal ball approach or only trying to predict the future. This to my mind is an ill informed view as both price and time are valid in the study of the markets. The price techniques of Gann allow you to trade market moves safely and profitably, the time techniques can give you an insight into when the most appropriate time to trade might be.
In highlighting this point I will return to one of my favourite markets, Light Sweet Crude traded out of the NYMX exchange in America. The symbol in your software will be CL-SPOTV. When we trade using price or time, Gann analysis requires us to accept one basic concept, that being history repeats. Most people accept that price action is often repeated, so in extending that theory we can also look for time frames to repeat.
A question that I am often asked is "on what scale do we look for repeating time frames?" That’s a relatively simple one to answer; we look at all and any time periods. Noel Campbell’s article last week looked at time frames that were measured over many years. In this case we will look at smaller time scales.
The chart below is the oil market running from the all time high in October last year, which would be a strong reference point for any time frame counts moving forward. The market pulled back significantly to the lows in December 2004. This run down was completed in 46 days.
We can then use this 46 day time frame again to assist us in projecting where the next cycle “may” complete. Using this calculation we projected that January 25th would be a point of interest to watch. This proved to be a turning point in the market and oil sold off again from this point.
Chart 1
click chart for more detail
This style of analysis would not be enough to make sole trading decisions from. So in chart 1 I have also included the Gann retracement tool and measured from the all time high to the December low. A strong juncture occurred on January 25th with the 62.5% pressure point. We could say that time and price has clustered, helping us to project a potential turning point. In this case this cluster has held as a level of strong resistance.
Moving forward now that we have identified this time frame, we can certainly use this as a tool for further analysis. Those with the Ultimate Gann software can set these chart pages up very easily, for the rest a good old calendar will do just as well to see where 46 days after January 25th comes in. Remember we are not looking to pick tops or bottoms; we are just analysing cycles and projecting potential turning points.
Good Trading
Aaron Lynch
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