FOREX
TRADING
FOREX TECHNICAL ANALYSIS
FOR 100% MONTHLY RETURNS
GANN TRADING FOREX SYSTEM
Don Chauncey
Risk Disclaimer
RISKS ASSOCIATED WITH FOREX TRADING
Trading foreign currencies can be a challenging and potentially profitable
opportunity for investors. However, before deciding to participate in the
Forex market, you should carefully consider your investment objectives,
level of experience, and risk appetite. Most importantly, do not invest
money you cannot afford to lose.
There is considerable exposure to risk in any foreign exchange transaction.
Any transaction involving currencies involves risks including, but not
limited to, the potential for changing political and/or economic conditions
that may substantially affect the price or liquidity of a currency.
Investments in foreign exchange speculation may also be susceptible to
sharp rises and falls as the relevant market values fluctuate. The leveraged
nature of Forex trading means that any market movement will have an
equally proportional effect on your deposited funds. This may work
against you as well as for you. Not only may investors get back less than
they invested, but in the case of higher risk strategies, investors may lose
the entirety of their investment. It is for this reason that when speculating
in such markets it is advisable to use only risk capital.
Risk Disclaimer
Trading foreign exchange on margin carries a high level of risk, and may
not be suitable for all investors. Past performance is not indicative of
future results. The high degree of leverage can work against you as well as
for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that
you cannot afford to lose. You should be aware of all the risks associated
with foreign exchange trading, and seek advice from an independent
financial advisor if you have any doubts.
Benefits and Risks of Leverage
Leverage allows traders the ability to enter into a position worth many
times the account value with a relatively small amount of money. This
leverage can work with you as well as against you. Even though the Forex
market offers traders the ability to use a high degree of leverage, trading
with high leverage may increase the losses suffered.
Please use caution when using leverage in trading or investing.
Hypothetical Results Disclaimer
THESE RESULTS ARE BASED ON SIMULATED OR
HYPOTHETICAL
PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT
LIMITATIONS.
UNLIKE THE RESULTS SHOWN IN AN ACTUAL PERFORMANCE
RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL
TRADING. ALSO, BECAUSE
THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED,
THESE RESULTS
MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE
IMPACT, IF ANY, OF
CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY.
SIMULATED OR
HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO
SUBJECT TO
THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF
HINDSIGHT.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT
WILL OR IS
LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE
BEING
SHOWN.
The information that may be presented is based on simulated trading using
systems and education developed exclusively by MTI. Simulated results
do not represent actual trading. Please note that simulated trading results
may or may not have been back-tested for accuracy and that
spreads/commissions are not taken into account when preparing
hypothetical results.
No representation is being made that any account will or is likely to
achieve profits or losses similar to those that may be shown. Past
performance is not indicative of future results. Individual results vary and
no representation is made that clients will or are likely to achieve profits or
incur losses comparable to those that may be shown.
COPYRIGHT AND DISCLAIMER
Copyright 2015 by Don Chauncey. All rights reserved.
No part of this publication may be reproduced or transmitted in any form
or by any means, mechanical or electronic, including photocopying and
recording, or by any information storage and retrieval system, without
permission in writing from the author (except by a reviewer, who may
quote brief passages and/or short brief video clips in a review).
Disclaimer: All the material contained in this book is provided for
educational and informational purposes only. No responsibility can be
taken for any results or outcomes resulting from the use of this material.
While every attempt has been made to provide information that is both
accurate and effective, the author does not assume any responsibility for
the accuracy or use/misuse of this information. The author makes no
representations or warranties with respect to the accuracy or completeness
of the contents of this work and specifically disclaim all warranties,
including without limitation warranties for a particular purpose. No
warranty may be created or extended by sales or processed materials. The
advice and strategies contained herein may not be suitable for every
situation. This work is sold with the understanding that the author is not
engaged in rendering legal, accounting, or other professional services. If
professional assistance is required, the services of a competent
professional person should be sought. The author shall not be liable for
damages arising here from. The fact that an organization or website is
referred to in this work as a citation and/or a potential source of further
information does not mean that the author endorses the information the
organization or website may provide or recommendations it may make.
Further, readers should be aware that Internet websites listed in this work
may have changed.
Table of Contents
Risk Disclaimer
COPYRIGHT AND DISCLAIMER
Introduction
Chapter 1: Behavior of the Market
Chapter 2: Science of Geometrical Angles
Chapter 3: Defining Correct Price Unit For 1x1 Angle
Chapter 4: Defining Correct Price Unit For 1x1 Angle across All Time
Frames
Chapter 5: Drawing and Using the Gann Fan
Chapter 6: How to Trade on Support Points in Direction of the Main Trend
Chapter 7: How to Trade When Two Angles Cross
Chapter 8: How to Trade after Consolidation of the Two Angles
Chapter 9: Summary of the Rules
Chapter 10: Money Management
Chapter 11: More Examples and Explanations
Conclusion
Introduction
I became a profitable trader not by luck, not by chance, not by rich parents
or rich acquaintances, and definitely not by university which I did not go
to. I began my path towards a wealthy lifestyle by learning about forex in a
little room at the age of 19 and nothing else but a desktop PC.
If you think that my success in trading has anything to do with luck or
knowing the right people you are wrong. It all has to do with practical
knowledge and proper use of science and use of your brain of course. But
not any kind of “knowledge” is useful knowledge. The knowledge must be
real and correct and mostly, practical.
Imagine I would tell you right now to fly an Airbus A380 from Frankfurt
to New York without having a slightest clue how to fly a plane. Would
you be able to do it? No.
But the pilot who knows how to fly a plane will have a very easy time
taking off and landing safely in New York. He will even have fun on the
way. If you listen to people who speak of impossibilities in trading
successfully it is like listening to a guy who is still learning to drive a
bicycle telling you that flying a plane is not possible or too difficult and
you taking his word for it. Be the person who does not chat with people
like this. Be the person who simply learns what he or she wants to know
and then do what he or she wants to do using the acquired knowledge.
I have learned what I did about trading and investing from the most
profitable trader of the mankind’s history and adopted his findings with
my own findings. That man was William Delbert Gann. I am trading with
accuracy and profitability beyond my initial expectations, and even those
were high. His methods and his knowledge enabled me to see the market
in a whole another way that I was not able to see before and I dedicate this
book to his methods of trading and explain how to use those methods to
make consistent profits in the forex market.
The beauty of my trading does not come from money management, which
is the least important thing in trading if you do not know how to trade in
the first place. The beauty of my trading comes from knowing and
understanding the market behavior and then following the trend. The only
way I separate myself from other traders is that I know what the market
will do and do not speculate.
To trade with profitability in any market you must go beyond fear, hope
and aftermath blame, and begin a path of exact knowledge where emotions
no longer open your trading positions but exact science does. The only
way you can know exactly at
what time the sun will rise tomorrow at your place is due to exact science.
The same goes with trading.
Mathematics is the only exact science and by understanding the simple
science of mathematics and how they apply to markets you can easily
master any market in this world from forex to shares to commodities. To
make things easier for you, I will tell you that all markets in this world
follow the same principles and by understanding those simple principles
you will be able to trade anything you have access to, and not just forex
market.
Understand the following before you read this book: I will not teach
you basics of forex trading. I might mention a thing or two but in general I
will assume that you already understand the basics of trading such as trend
lines, candlestick formations, and have an idea of how useless standard
indicators are in predicting the market. If you have basics checked, you
will make a very good use of my book and become a very good trader
yourself quite quickly I believe. If you don’t have those checked you
might need to learn some basics before you can understand this book. But
do not worry. Even if you are an absolute beginner you will still make a
good use of this book. It is written in a correct language and explained in
detail so it is meant for everyone.
Chapter 1: Behavior of the Market
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Everything in this universe is governed by natural laws. From stars and
planets down to the atom. Human behavior is governed by natural laws as
well. Understanding how these principles apply to forex market and then
using a plane of chart and proper tools to identify people’s decisions about
the market direction will make you a profitable trader.
99% of forex participants are losing money because they cannot care less
whether they know even a tiny bit about trading or not and insist in
gambling their money away by asking advice from others. Trading with
profits require no luck, no insider information, no prior experiences, no
public education but only simple knowledge. And this is nothing out of
reach. Once you have knowledge you can begin trading profitably from the
day one and only improve your trading afterwards.
If you look at any chart you see a 2 dimensional plane with time on the x
axis and price on the y axis, so you are dealing with a geometrical space.
Both of them are equally important in predicting the direction and strength
of the market and turning points where people change their general
opinion and majority of market participants trade in the same direction,
making a trend. You must take both time and price into consideration in
order to fully understand what the market is doing and where it will be
going next.
Standard indicators that come with most trading software such as moving
averages, MACD, stochastic oscillators, and so on, are useless in
predicting the actual future of price movement because they only consider
price changes and disregard the factor of time and they show only price
itself in a smoother way. They do not show anything else but what you
already see on the chart.
Price has a tendency to trend. What that means is what it means in every
business.
When one product gets attention from the people, masses of people tend to
follow it.
Not because they are smart but because they feel that if something is
popular or “trendy”
it must be something they also want to have it and be part of it. Trends are
usually cyclical in nature so they have a tendency to swing up and down in
a certain time intervals.
The same goes to investing into businesses, commodities and currencies. If
people see that a particular currency starts to gain strength in comparison
to another currency, therefore in a currency pair, people naturally assume
that there is something going on
and they want to profit from it. So if the price is rising over the last certain
amount of time people assume it will rise even more so they buy more of
that currency and drive prices even further up. The same goes for prices
falling, or when the second currency in a currency pair starts to gain
strength.
As the prices start to move higher and higher more and more people start
to sell (or buy the second currency in a pair) simply because they think that
price cannot get any higher and will soon start to move back down and so
we get fluctuations or vibrations of the price that are moved based on how
people’s decisions are being influenced by their thinking, greed and fear.
This is why there are so many swings on a shorter time frame and longer
time frame. We call these moves trends, simply because price rise or fall
for a certain duration of time without making any significant move in the
other direction. Every trend has little trends within and those little trends
have even smaller trends within.
Although there is a big trend of price moving up that can last for several
years, months, weeks or days, there will be many trends that can move up
and down within this bigger trend up. This is a natural occurrence and this
is why many traders will agree that the biggest profits can be made when
you trade in the direction of the bigger underlying trend just when the
smaller opposite trend within this big trend has ran out of juice and the
prices will start to make another smaller trend up in the direction of the
main underlying trend. The same applies to the uptrends and downtrends.
The reason why trend lines work is because people make their decisions
based on fear and greed and the masses always work together as one and
they are what moves the prices. So when one trend gets exhausted it will
change direction and once it gets exhausted again it will change direction
again and so on. And those turning points happen at accurately measurable
points in time and price which we draw on the chart as trend lines.
Now, if you draw simple trend lines connecting several tops or bottoms in
any uptrend or downtrend you will see that price has a tendency to
conform these lines where the market as whole takes support from more
people of the same opinion and move on in the main direction or resist to
go any further in the same direction and entirely change the trend
direction.
Here is an example of daily EURUSD chart where you can clearly see
bigger trends in a certain direction containing smaller trends or swings
within the main trend going up and down. Every time the market moves
against the big trend it will hit a certain support level from where it will
start to move back in the direction of the main
trend. Those support levels are mathematically correct in nature and can be
detected with proper tools if you correctly analyze the geometry of the
chart and do not take it as a random occurrence, which it isn’t. So, every
time those support levels are reached you can trade in the direction of the
main trend, be it up or down. I will soon discuss these geometrical support
and resistance lines.
You can go to smaller time frames or larger time frames of the chart and
you will see the same behavior of price on any time frame from monthly
charts down to the minutely charts. Once again, the best profits are made
when you are aware in which direction the bigger trend is going and then
enter a trade every time the market makes a shorter move in the opposite
direction, takes support on one of the geometrical support levels without
going out of the main trend, and continue in the direction of the main trend
again.
You can trade this way on any time frame. I am particularly fond of using
the daily, weekly and monthly charts to do my analysis and trading
decisions because they give me a lot of free time during the days so I can
live my life and do not spend it on staring at the monitor. But hourly charts
are just as useful in trading.
The trading method I will talk about is the most accurate way of
determining the main trends and determining natural support lines where
market takes support to
continue in the direction of the main trend.
Chapter 2: Science of Geometrical Angles
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Every uptrend or downtrend is in a geometrical proportions with time and
price, which means that it has to move a certain price units and certain
time units to complete its cycle before changing direction again.
There is a point in any uptrend or downtrend where both time and price
come into balance, where price is neither faster on the x axis nor faster on
the y axis. At that point market is neither weak neither strong, neither
rising neither falling but it is in perfect balance. You identify that point by
drawing a geometrical angle from any extreme top or extreme bottom that
travels one unit of price per one unit of time so it splits time and price in
half, giving us a perfect balance point between price and time. This line is
also called a 1x1 line, since it is drawn one unit pf price per one unit of
time. Here is the example of the same daily EURUSD chart with 1x1 line
drawn on it: This diagonal line, or 1x1 line is showing the balance point
between buyers and sellers and if this line is broken after the market was
trending under it on the downtrend or above it on the uptrend, you have a
signal that the main trend will most likely change direction.
This is not a random line. It must be drawn from extreme top or extreme
bottom, from the extreme beginning of the trend (on any time frame), and
not from any other top
during the trend, and it must be drawn at one point of price per one point
of time. This line does not follow the price. This line requires only one
point to be drawn and it will stay fixed in the future at all times throughout
the duration of the trend. It will not change position.
From our example of a downtrend you can clearly see that as long as the
market is under this line it is in a downtrend and the moment it crosses this
balance point of time and price it begins a new uptrend.
Now, what you have to know is how much points of price can be taken as
one unit on any time frame. One bar always represent one unit of time, be
it on the daily, weekly, monthly or hourly charts, but one unit of price
changes from one time frame to the other.
On our last chart of daily EURUSD, this line in particular is drawn at
$0.00200
per day, so one unit of price is taken as $0.00200 (which is called as 200
points) and one unit of time is one bar, in this case one day. This means
that for every day, line makes a move of $0.00200. So after 10 days, this
line is $0.02000 lower from the base.
Why did I draw this line at 200 points per day and not anything else? I will
tell you why in the next chapter.
In our case we have a trend down and this trend will have several up and
down swings while the main trend moves down, which is clearly visible.
While the trend lasts, the price should never get out of the trend zone,
meaning that the price does not cross this 1x1 line and stay above it. On a
downtrend, price should stay below this line at all times from the extreme
top to still be in an active downtrend and on an uptrend price should stay
above the 1x1 line (which would go from extreme bottom towards top in a
new uptrend).
You need to wait for at least 3 or 4 bars or more in one direction before
you draw this line so that you are sure that market is making a new trend.
There is no use to draw lines from tops and bottoms any sooner than that.
And once the market makes several bars in one direction you begin trading
in the direction of the trend. I will explain how to trade in a moment.
There are times when price is rising, making a smaller uptrend, but it is in
fact rising only to take support on a bigger downtrend and vice versa for
the uptrends, like we can see in our example. With a mathematically exact
tool such as this, these market behaviors are instantaneously spotted and
identified with absolute accuracy so you can never enter the market in the
wrong direction by misunderstanding price behavior or not knowing
exactly where market is going.
At many times or at least at one point in every trend that 1x1 line will be
reached and then the market will usually either bounce from this line
(taking support) without breaking over it and continue back in the main
direction or move over this line starting a new trend in the opposite
direction. To see the same chart again, you can see that the market took
support on this line and made another swift move down and the second
time it reached this line it went straight through and began a new uptrend.
This 1x1 line is your most important trend line of all trend lines you can
have drawn on your chart. It is scientific in nature and it splits time and
price into half so you know that as long as the price is under this line on
the downtrend you are still in the downtrend and as long as it is above this
line in the uptrend (drawn from below going up) it is in the uptrend. Just
this information alone is a powerful piece of information.
I draw a second 1x1 line on the same chart that is the support for the
uptrend.
What confuses many new traders who get to know Gann angles and his
methods of trading is that they read that his angle must be drawn at 45° but
they do not understand what that really means and why did Mr. Gann say
so.
If you randomly draw a line at 45° on your current chart as you see it and
then shrink or stretch the price chart, this 45° angle will completely change
the position based on the price so it becomes useless to trade with it, so
you would need to scale the chart correctly so that it is in perfect
proportions with both time and price at all times, and only then you could
use the angle drawn at 45°.
There is a good reason why Gann spoke of this 1x1 line as a line of 45
degrees.
You have to understand what 45° really means. The following two
examples are from the same price range and both have a 45° angle drawn
on them but you can clearly see that as I stretch or shrink the chart, the
price will change position with respect to the 45°
angle, so to get that angle at the correct position you would need to scale
the chart to stay at predefined price per time units.
Now, what is really important is not that the 1x1 line is set at 45° going
either up
or down on your chart. This is how mr. Gann was drawing his charts
simply because he was drawing charts by hand and so he drew them on a
paper with 1/8 inch squares where one point of price made the same
distance as one point in time (in inches), so his 1x1 angle always came out
to be drawn at exactly 45°. He could not stretch or shrink his paper charts,
so his 1x1 angle was always drawn at 45°. However, it is not degrees of
this angle that are important but that this line is drawn at one unit of price
per one unit of time, and this why Gann also talked about this angle as 1x1
angle most of the time and not as a 45° angle.
Due to computers, you can stretch or shrink the chart on the y axis as well
as on the x axis while having 1x1 line drawn on it, and this 1x1 line will
change the angle in degrees, but it will still stay on the same position
relative to the price and still giving accurate results, still being drawn at
one unit of price per one unit of time. Instead of thinking about degrees,
think about how many price points per one time unit a line is drawn at.
So, if you would need to draw 1x1 line at 200 points per day, you could
also scale the chart to be drawn at 200 points per day and then this 1x1 line
would also come out to be drawn at exactly 45°. But still, what matters is
that this 1x1 angle is drawn at 200
points per day and not that it comes out as a 45° angle.
I use Metatrader 5 free trading software to do all of my trading and
analysis and it is far the best trading software out there, especially for
drawing the angles. All graphical material in this book is taken from the
MT5 trading software and I highly recommend you to use it as well. You
can download it for free from the official website.
Chapter 3: Defining Correct Price Unit For 1x1 Angle
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It is very easy to draw the angle in MT5 because you only need to select
“Gann Angle” tool and draw it from any extreme top or bottom of the
trend and specify how many points per bar you want the line to be drawn
at. The line will automatically attach to the top or bottom and get aligned
to your settings. In our previous chart example, you would need to draw
this line at 200 points per day or $0.00200 per day.
To make sure you understand that common misconception of degrees,
forget about drawing the angles at degrees such as 45° for 1x1 line,
because degrees are completely irrelevant and your angles will not be
drawn at exact degrees on your computer software once you put them on,
unless you would also scale your chart so that this line aligns with 45°.
So, how do you identify how many price points should be used as one unit
of price?
In cases where a currency pair trades at lower prices, below $1.00000 or
below $100.000 and lower, $0.00100 (100 points) or $0.100 (also 100
points) per day must be used as a 1x1 line.
This is because price fluctuations are always relative to their current
strength of a particular currency and so although it takes the same amount
of days for one move to complete, it will take more or less price units
based on how strong one currency is in comparison to the second currency
in a pair.
At $1.00000 both currency pairs are equally strong, meaning that the same
amount of wealth is held in each currency throughout the world. At
$2.00000 first currency is twice as strong as the second currency and at
$0.50000 the second currency is twice as strong as the first one. And the
same goes for anything in between or above and below.
If the price for EURUSD is at $2, that means that you need $2 to buy 1€. If
it is as $0.5 you need only 50 dollar cents to buy 1€. So you need much
more or much less of one currency to buy 1 unit of another currency.
In other words, if you have $0.5 and the market price for EURUSD is at
$0.5 and you want to have twice as much dollars you need 1€ to increase
your worth by 2. So you buy $0.5 more with €1 and you are now at $1.
Now, you have $1 in total. After some time market price for EURUSD
gets up to $1.0. Once again, you want to double your entire worth of $1.
Now that the price for one dollar is exactly one euro, you need €1 as well,
to increase your worth of $1 by 2.
So you buy $1 more, again with only €1 and you are now at $2. And so on.
As entire world’s market does this, they spend the same amount of euros to
move the price from $0.5 to $1.0 than they spend to move the price from
$1.0 to $2.0 or even from $2.0 to $4.0.
This is why the stronger the market is in one particular currency, greater
the fluctuations will be in price units simply because you still need the
same amount of lot size of the other currency to buy the second currency
in a pair. And all traders trade with the same lot sizes more or less in their
trading because it costs them the same amount of money, only that once
they exchange the dollar for euro they either have more or less of the
second currency for the same amount of the first currency.
So if EURUSD would be trading below $1.00000, at $0.75000 or around,
100
points per day is a correct 1x1 line. If it would trade between $1.00000 and
$2.00000, then you have to use 200 points per day to get the correct 1x1
line. Above $2 and less than $4 you need 400 points per day to get a
correct 1x1 line. So you have to use a bigger or smaller amount of price
units as one point of price while you keep one point of time as it is.
That goes across all currency pairs. You always double or halve the basic
unit, which is 100 points per day across all currency pairs based on how
high the price is trading, or (0.00100 or 0.100 of the value of a particular
pair).
Use 50 points per day for 1x1 line if price is in the range between $0.25
and $0.50. Use 100 points per day if the price is in the range of $0.50 and
$1.00. Use 200
points per day if the price is in the range of $1.00 and $2.00. Use 400
points per day if the price is in the range of $2.00 and $4.00. And so on. If
the price happens to make its trend going from one range to the other then
you simply use one of the values that seem to provide the best angle. That
goes for all currency pairs.
For the currency pairs that are trading at hundreds such as $100.00 and so,
you use the same principle and you use 100 points per day when price is
ranging between $50.00 and $100.00 and so on.
One point of price is considered a last digit in a price. That will either be
$0.00001 for EURUSD and similar currency pairs or $0.001 for USDJPY
and currency pairs that trade in hundreds.
All of this is done one the daily chart. On other time frames the principle is
the same only different price units apply. More on that later.
This simple science of relativity is clearly visible on the following
examples and if you draw the lines yourself right now on any daily chart of
your choice you will see it in practice yourself.
First daily chart of EURUSD is taken from the year 2001 when the price
was ranging between $0.83000 and $0.93000. I have used 100 points per
day or $0.00100
per day to draw a 1x1 line from the extreme low, which splits time and
price in half for that particular uptrend. As long as the price stays above
this line the market is stronger and it is in the uptrend and the moment it
breaks under this line the market is weaker and a new downtrend is highly
likely. 200 points per day would clearly be too steep and 50
too shallow. You see that the line itself is not really drawn at 45°, and I
could simply stretch the chart a bit on the y axis and the entire setting
would stretch. But degrees don’t matter when we use computers, so I don’t
care to play with the scale.
The second chart of daily EURUSD is taken from the year 2010 when the
price was ranging between $1.19000 and $1.34000, and later higher than
that. I have used 200
points per day or $0.00200 per day to draw a 1x1 line from the extreme
low, which splits time and price in half for this particular uptrend. As long
as the price stays above this line the market is stronger and it is in the
uptrend and the moment it breaks under this line the market is weaker and
a new downtrend is highly likely. 400 points per day would clearly be too
steep and 100 too shallow.
In this particular case, price did not made a long downtrend after it has
broken through the 1x1 line coming from the first extreme low. Entire
setting was just a small downtrend before market continued back up again.
I could easily draw another line coming down from the last top to get a
balance point on that new small downtrend. Once the price has broken
through this 1x1 line it started a swift long move up again.
Trading itself is not conducted on the breakouts. This is what many traders
think when they get to know Gann angles and try to trade whenever a
breakout occurs.
Trading itself is done when the market is making support on these lines
and not on the breakouts.
Here is another example of daily EURUSD chart taken from the year 2013
when the price was ranging between $1.27000 and $1.40000. I have used
200 points per day or $0.00200 per day to draw a 1x1 line from the
extreme high, and you can clearly see that price was following the line all
the way to the end of the trend and once it has broken through it began a
whole new uptrend without going under the last low. 100
points per day would clearly be too shallow for 1x1 line and 400 points per
day too steep for this particular setting.
Here are two more charts of daily GBPJPY at two different times. First
chart shows the downtrend and uptrend of 2007 when price was ranging
between ¥250.000
and ¥220.000, which is why I used 400 points per day (or ¥0.400 per day)
to draw 1x1
line. When the price is below ¥200.000 and still above ¥100.000 I use 200
points per day to draw 1x1 angle on GBPJPY. If it would ever go above
¥400.000 and still stay below ¥800.000 I would use 800 points per day to
draw 1x1 line.
You can see that only these lines split price and time in half in the current
setting and any other line would either be too shallow or two steep. The
market clearly follows these lines and those who are trend-line-fans will
like this kind of trading a lot since those trend lines provide perfect
accuracy in determining trend direction and can use these lines as support
and resistance lines that will provide much better trading decisions than
simple trend lines connecting several tops and bottoms.
The following is a daily chart of GBPJPY of 2012 when price was ranging
between ¥115.000 and ¥130.000, which is why I used 200 points per day
(or ¥0.200
per day) to draw 1x1 line. Any other line but this would either come out to
be too steep or too shallow. It is usually very easy to determine the correct
1x1 line just by looking at what the price was doing until that point when
you draw a line and if the line appears to be drawn at the right steepness or
not.
1x1 angle will always give you the only exact support in any uptrend or
downtrend based on the pure geometrical science. No other line would
show this true natural halfway point between buyers and sellers but this
1x1 angle. Simple trend lines that only connect two tops or two bottoms
cannot be used at detecting true trend direction as these angles can.
Chapter 4: Defining Correct Price Unit For 1x1 Angle across All Time
Frames
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You cannot use the same price unit on the daily chart as you do on the
weekly or on the hourly chart because you have less bars or more bars
drawn for the same movement, which is why you have to compensate for
this change by dividing or multiplying the value from the daily chart as
many times as necessary to get the correct value for the 1x1
line on the time frame you are observing. One week has 5 days, and one
month has 4
weeks (rounded) so if you draw 1x1 angle on the daily chart at $0.00200
(200 points) per day, you need to draw 1x1 angle on weekly or monthly
charts at $0.00500 or $0.01000 per week or per month on majority of
currency pairs.
One day has 24 hours, so you need to divide the value you use for 1x1
angle on the daily chart by 24 and then multiply it by 2 as many times as
necessary to get the angle at perfect steepness. If you draw an angle on the
daily chart at 200 points per day then on the hourly chart you would draw
a 1x1 line that goes up or down at 33.33 or 66.66
points per 1 hour (or $0.00033333… or $0.0006666 per 1 hour) to
compensate for the change in time frame and get the correct angles for H1
chart. If you observe the 3 hourly or 6 hourly or 12 hourly charts than you
use the same value as you use on the daily chart only divide it by 2 as
many times as necessary to get the correct steepness for the 1x1
angle on those time frames.
100 or 200 points per day is the basis for a daily chart across all major
currency pairs and crosses. On some more exotic pairs such as USDSEK
you need to multiply all values by 2 as many times as necessary,
sometimes you can get up to 1600 points per day on some pairs. But you
do not use a basis of 1000 points per day on those currency pairs although
it might seem as a better idea. It is not. Once those currency pairs start to
trade really low you will use 400 and 200 points per day as well.
On XAGUSD (Silver) you need to use $0.060 or $0.120 per day to draw
1x1
angle, which is 60 or 120 points per day (that comes from 300/600 per
week), and on XAUUSD (Gold) you need to use $2 or $4 per day for 1x1
angle, which is 2000 or 4000 points per day or less or more if it is needed.
Of course, as the prices start to rise much higher or much lower you will
have to double or divide by two these numbers as well.
Chapter 5: Drawing and Using the Gann Fan
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Now that you understand the 1x1 angle and what information it conveys,
you can move on to the advanced use of the angles. By drawing additional
angles left and right of the 1x1 angle you get to know how strong the
market is in its trend and when it is taking true support on the bigger down
or bigger up trend.
You should divide the space on the left side of this 1x1 line in half, where
buyers are twice as strong on the uptrend or twice as weak on the
downtrend. That line goes up 2 price units for one time unit, and if 1x1
line was drawn at 200 points per day, then 2x1
line is drawn at 400 points per day. When the market is trading above 2x1
line on the uptrend you know that it is stronger than when it is trading only
above 1x1 line. Twice as strong in fact, so it will make twice as much
move in price as it will in time.
You should further divide the space between the 2x1 line and vertical line
to get a 4x1 angle, where buyers are 4 times stronger than the sellers. In
our case, that line is drawn at 800 points per day. Again, when price is
above this line on the uptrend you know that the upward move is really
strong and 4 times as strong as if it is only above 1x1 angle.
You should further divide the remaining space in half one more time to get
a 8x1
line where buyers totally dominate the movement of the price and are 8
times stronger than the sellers. In our example that line is drawn at 1600
points per day.
The same rules apply for the uptrend and for the downtrend. There is one
more line you can draw and that is 3x1 line, which splits the space
between the 1x1 line and the vertical line in 2/3, so it goes up or down 3
price units per one time unit. In our case that would be 600 points per day.
Gann said that 3x1 line is most useful on the weekly and monthly charts or
on the daily chart when the price is far from the base of the trend, but I
find it equally useful on the daily chart as well regardless of how far the
price is from the base of the trend.
This is how angles look on the chart. The following two examples are from
a daily chart of GBPAUD:
You should also draw the angles on the shallower side of the 1x1 line
which will be your support and resistance points on the downtrend once
the trend reverses.
Those are all 9 most important angles that you need to draw from any
extreme top or bottom in order to get future natural support and resistance
lines. If the market stays above the 1x1 line on the uptrend it is strong and
it is going up. If it stays above the 2x1
line it is twice as strong and more swift moves can be expected. If it stays
above the 4x1
line then the market is really strong and above 8x1 line buyers are 8 times
stronger than the sellers and price is really rising straight up. The same rule
applies to the downtrend.
All 9 important angles (4 on the steeper side and 4 on the shallower side of
1x1
angle) combined are called a Gann Fan, and majority of experienced
traders have heard all about it. Using Gann Fan tool in MT5 is very easy.
You only select the extreme top or bottom the fan will be drawn from and
select how many price points per bar 1x1 line will be drawn at and all
other 8 lines are set automatically.
You need to wait for at least 3 or more bars in the same direction before
you decide to put a Gann Fan on the chart. This way you trade on more
significant trends and not on any minor move that happens. Minor moves
on the daily chart would be traded on the hourly charts (H1, H2, H3, H6
etc…) where you would get significantly more bars to trade with and also
enter the market much sooner as you do not wait until the day ends. You
would also exit trades much sooner. Hourly charts are for those traders
who
like to spend a significant portion of their daily time trading.
One thing to mention at this point is that if you use Metatrader 4 platform
to do your analysis, do not use Gann Fan tool as it does not draw it
correctly. Use only Gann Line tool and draw every line individually.
Metatrader 5 on the other hand draws Gann Fan correctly so you can draw
all 9 angles with a single click of the button. If you use any other platform
make sure that angles are drawn correctly. I have no experiences with any
other software so I cannot make any comments regarding those.
Chapter 6: How to Trade on Support Points in Direction of the Main
Trend
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Here is how trading in the direction of the trend is done, using angles as
support lines.
You draw a Gann fan from every extreme top or bottom so that you get
future support and resistance lines.
Every time in an uptrend when price is trading up and then it comes down
and rests on the 1x1, 2x1, 3x1, 4x1 or 8x1 angle, without breaking and
staying below that angle, you enter a long position on the first bar that
closes higher than it opens after the price rests on the angle.
When the price comes to the angle and takes support, one or more of the
bars that are on the angle must be exactly on the angle with either the
high/low of either of the bars or with the closing price of the first bar and
second bar confirming the new swing direction. First bar can also close on
the other side of the angle and then the next bar immediately regains the
angle closing on the side of the trend again and you can enter as well. If
the bars strikes through angle and then it goes back and closes far away
from the angle that is a clear indication that market is likely to go through
that angle pretty soon so you do not make any trade.
What also matters is that the angle where price takes support was not yet
broken through from before. If that would happen that is an indication that
this angle is not a strong support since it was already broken through
before and cannot be used anymore.
You always open a trade on the close of the bar so on the daily chart that
would be on the close of the day and not during the day when the result of
that day is still unknown. If one bar breaks through the angle and closes on
the other side and then the next immediate bar goes back over the line and
closes on the other side again, you enter the trade just as well.
Here are 4 examples of daily charts from four different settings. You can
see that on each chart price makes a top/bottom on the angle perfectly with
first or with second bar. After that, the next bar moves again in the
direction of the main trend confirming that this line is a strong support line
and the market will continue. On the bottom left chart you can see that the
first trade did not made profits because the price hit the stop loss before
making any significant profit. But that is just fine since losing trades
happen
rarely.
On the uptrend, stop loss is set just below the bar that rests on the angle
and profits are taken once the first bar with the body of the opposite
direction is formed or you manually trail a stop loss and place it under the
low of every consecutive bar until the stop loss is executed and you take
the profits. Reverse the rule on the downtrend.
Here is a more detailed explanation of the entry points from the example
of daily EURUSD chart with one downtrend and one uptrend:
Here are the 3 trades you would take on the downtrend: You can see that
there is another support on the 2x1 line after the second short trade but I
did not made that trade. I usually don’t enter a trade the second time on the
same angle unless that angle is 1x1 line. The market usually does not stay
above 2x1, 3x1, 4x1 and 8x1 lines as long as it can stay above the 1x1 line.
After the price breaks up through the 1x1 line after the downtrend and
three successful short trades, it comes back down to the same 1x1 line
which now acts as a resistance line and at the same time it takes support on
the 1x3 line coming up from the low giving us a double signal that market
has reversed and has taken its first support on a new longer uptrend that
follows. The moment a white bar is formed and closed and confirm that
market really has taken support on the 1x3 angle and is continuing up, you
enter a long trade. These entry points should be easy to understand.
Never exit a profitable trade just because you are in some profits as you
can very easily see the price going on much longer and that will not make
you happy. If there is no reason to exit a trade, don’t.
Now, what you have to know about these lines is not just that prices have a
tendency to take support on them while trending, which gives us perfect
opportunities to enter the market in the direction of the main trend, but also
that once any of the angles are broken, price has a tendency to move to the
next nearest angle and either take support there or break through that angle
as well going again to the next one. Once 1x1
line is broken, on the downtrend for example, you can expect that prices
will rise higher until the first shallower 1x2 line and so on.
We get three more long entry points on the new uptrend alongside the 1x1
line later on. This is the accuracy that accurately drawn angles provide and
you should get the
same accurate results on every chart if you draw the angles with the values
I provide and don’t make up your own values, what many inexperienced
trades like to do with a Gann fan.
Instead of trading on the breakouts of 1x1 line alone you wait for a first
support on a new trend and then trade in the direction of the new trend.
This is what we have done on our first long position in our example – the
first arrow that points up.
You can see that I have made one more short trade on the new uptrend, so
in a way I was going against the uptrend. Here is why: when the price
makes a top on one of the angles on the shallower side from the previous
high, you have an opportunity to go short if you have an additional
confirmation signals such as a “doji” bar formation as in this example as
well as confirmation from the other angles, in our case the 1x3 resistance
line going up from the last bottom. I would exit this short trade after the
first white bar is created and closed because I know I am going against the
trend and if I have no reason to believe that the market is turning down
then I treat it as if it isn’t and take profits on the first signal of potential
higher prices.
Here is the continuation of the same uptrend:
The last trade in this uptrend is a bit different because price have broken
through the line, but still the same rule applies. Whenever the market
breaks through the line, closing below it, and then immediately regains the
angle going back again closing above
it with the next bar, we consider this as a signal to go long as well, with the
stop loss just below this bottom. Why? This means that although sellers
showed strength for a short period of time, buyers confirmed that it is not
the seller’s time yet and higher prices can be expected again. You would
follow the trend all the way up to the first colored bar in the opposite
direction with this trade in particular, getting profits of the 8
days. Rule is reversed on any downtrend occasion.
Know that under normal conditions you should trade only in the direction
of the trend, so when the price is above the 1x1 line on the uptrend or
below the 1x1 line on the downtrend and all the steeper lines. This is the
safest way of trading and most comfortable one as well. In fact, you can
make a fortune by trading just on the 1x1 angle alone every time the
market makes support on it, and as a beginner you might find this the
easiest thing to do.
Whenever a market takes a support on the 1x1 line or steeper angles
without breaking over them you have an opportunity to trade and go with
the trend. Price can also spike through the line and then close on the other
side of the line again, which is considered an equal signal or close on the
other side and then immediately going back over closing on the other side
again.
Chapter 7: How to Trade When Two Angles Cross
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As you become proficient at trading with the trend using angles as support
lines you can consider trading at turning points that form at the crossroads
of two lines from the two opposite trends. Trade when one angle on the
right side of 1x1 line crosses with another angle coming from the other
direction at the same point where price itself reverses and closes a first bar
in the direction you want to trade in. Those angles can be any of the 9
angles and not just those on the left side of 1x1 angle.
Take a look at the following daily EURUSD chart for examples where
each top and bottom is created where two angles cross – in both time and
price. No other top or bottom in between would be traded, simply because
they are hanging in the air and have no support from the two angles.
First short trade is an obvious one and it is in the direction of a new
downtrend that follows the basic rules of trading with the trend. Price
broke through and went below the 1x1 line from the previous long trend
up, giving as a signal for a possible trend reversal, and on the next bar it
took support on the 1x8 line coming from the new top. This is our entry
point to go short. There could be more points at which to take profits. I
would close out half of the open position after the first colored long bar
was created and leave other part to compile into more. I would leave it
open until that last
colored bar which hits 1x4 line coming from the top and the white bar was
created and closed.
Last three trades have a confirmation from the set of the two angles.
Shallow lines act as support lines and the steeper lines act as resistance
lines. In each instance market reverses where two lines meet. When the
price hits a shallow support line and a steep resistance line at the same
time, making an obvious turn with a confirmation bar closing in the same
direction, the profitable trade is very highly likely. This can be a highly
profitable addition to your trading but use this system with caution. You
are not trading with the trend but rather at turning points.
Any use of indicators such as MA’s, oscillators, MACD’s and others is
completely useless and waste of your time. It is true that you can still make
profits if you know how to use those indicators in your favor, but it takes
far more time to make the same amount of money simply because you are
never really sure where the market is going, where the stop loss should be
placed and when to close the trade. You have no real outlook of the market
behavior using standard indicators.
Chapter 8: How to Trade after Consolidation of the Two Angles
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This kind of signal is very easy to spot and almost always results in good
profits.
Whenever the price starts to narrow into the corner of the two angles from
the two different trends and those angles were not yet broken through from
before, you wait until the price breaks through one of the angles and you
enter when the bar closes on the other side of that angle in the direction of
the breakthrough. The price must also be below/above the 1x1 angle
coming from the last top/bottom before the breakthrough began. Here is
the example of the daily NZDJPY chart: You can see that price began to
narrow and consolidate between the shallow 1x4
angle coming from the top (1) and 1x1 angle coming from the bottom (2).
Neither of those two angles were broken before. After 1x1 angle was
broken downwards and confirm the downward move with a closing price
you enter a short position.
The price also stayed below the 1x1 angle coming from the last top (3). In
fact it even stayed below the 2x1 angle. You can take profits when the
price gets close to the 1x2 line coming from the low (2). You can place a
take profit a bit above the 1x2 line so
that once the price gets close to that line you take profits automatically.
Remember the rule that once the price breaks through one angle it has a
tendency to go to the next one below it? This is your good take-profit
strategy for situations like this.
These consolidations between the angles happen all the time, mostly on the
hourly charts where you can take good profit in only few hours.
Chapter 9: Summary of the Rules
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Here is the sum up of trading rules:
1. Whenever a price makes a new move for at least 3 to 4 bars, draw the
Gann fan from that extreme low or high using the appropriate price unit
for one bar based on the time frame and price range of the currency pair
you are observing.
2. Trade when (and if) price takes support on any of the steep angles in the
direction of the trend if that angle was not yet broken before. Whenever
price comes to the angle without breaking over it and the next bar closes
on the same side of the trend you enter a trade in the same direction. If the
same bar already closes higher than it opens you enter immediately. If the
price closes under the line and then the next bar immediately regains the
angle and closes above it you enter as well.
3. Whenever a price makes a top or bottom at any of the crossroads of two
angles from two latter top and bottom, trade as well, with confirmed bar in
the direction of the new swing.
4. Whenever a price narrows in the corner of the two angles wait for a first
breakout and enter in the direction of the breakout when the bar closes.
5. Stop loss is always placed a small amount under the signaling bar in the
uptrend and above the signaling bar in the downtrend. Make some room
for the price to move and breathe and do not place a stop loss directly on
the top or bottom.
6. Take half of the profits when you get the first bar of the opposite color
as well as trail the stop loss manually and place it below bottom of the
every consecutive bar on the uptrend until the stop loss order is executed
and you take the profits of the second half. Place a stop loss above every
top of every consecutive bar in the downtrend.
----------
All of which you have just learned through the examples in this book
apply to all currency pairs, silver and gold as well as shares, indices and
every other market with different price per time units. The lowest time
frame I ever trade on is a 1 hourly chart.
4 hourly chart is just as good. Weekly chart provides an outlook for the
long term. Daily chart is excellent. When you get a trading signal on a
weekly chart you know that you can expect a long-term trend in that
direction that will last for several
weeks/months/years. Then, you observe the daily chart and start entering
the trades on every opportunity and start taking profits while the long
weekly term is headed in its direction.
You should also observe the monthly chart. This is your long term outlook
and when you get the signal on the monthly chart you know that you can
expect a new trend in that direction for several months, probably years.
Then, you observe the weekly chart for first signal in the new long trend
that will follow. Then, you go down to the daily chart and trade on every
equal signal in the same direction as well.
You can always use the greater time frame for the bigger underlying trend
detection, and then use smaller time frames to enter several trades in the
same direction with assurance that price will be going on for quite some
time.
Trading with the angles will keep you safe and secure from the traps of
emotions, which empty accounts of 99% of market participants. Hope, fear
and greed are eliminated once you have angles on your chart and clearly
see what the market is doing and where it is going on both smaller time
frame as well as bigger time frame. This will prevent you from taking the
wrong trades in the wrong directions.
You are always free to use the angles in combination with any of your own
preferred methods of trading but I doubt that this will be necessary.
Chapter 10: Money Management
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You should use proper risk management, but you can trade with greater lot
sizes than you would with conventional strategies, simply because you risk
much less by understanding the market much more. Losing trades are
greatly reduced by analyzing the market with the angles, so you have
much more assurance in a steady and consistent profitability. This is what
I have been experiencing so far and I am sure I will never experience
anything else because laws of the nature will not change anytime soon and
angles will always show the same natural balance points.
I use the following simple money management: I increase or decrease my
lot size on any single trade so that possible losing amount (entry minus
stop loss) comes out at about 5% of the account balance. You can of
course decrease or increase this amount per your own judgement and
experience.
Due to the fact that you can usually have many open trades at the same
time at any time your equity will probably stay above your account
balance at any time even if there is one or more trades on the losing side at
that moment. Also, because I manually trail my stop loss orders on the
trades that are in profits I count this locked-in amount towards my account
balance and increase the lot size for new trades as I progress through
trading.
If your account balance would fall for significant amount than you should
also decrease your new traded lots so your risk remains in 5% risk ratio at
all times.
Money management plays no role in profiting and only serves a purpose of
protecting your capital and increasing it the fastest way possible while still
staying on the safe side.
Without managing your capital correctly you can find yourself investing
too much on potential losing trades and too little on potential highly
profitable trades. Keep your consistency in lot sizes and you will find it
safe to trade that way.
Chapter 11: More Examples and Explanations
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Here is an example from the 1 hourly chart of GBPAUD. You enter on
every colored bar after the support has been taken or the line regained, and
use a trailing stop loss above the top of each bar. First three trades deliver
a good profit. The fourth trade did not really go far. This is why you have
to use a manual trailing stop loss and place it above the top of each
consecutive bar so that if the prices reverse you still get some profits or
only a minor loss. Reverse the rule on the uptrend.
Conclusion
This is all you really need to know about trading with the angles. Although
the book is short it cannot be any longer to say all you need to know.
Knowledge makes things simple and powerful. You can see how easy it is
when you clearly see if market is in the trend, how strong it is and know
once it has reversed.
You can make a fortune trading on just 1x1 angle alone whenever the price
takes support on it and bounce off again to continue a trend. I usually trade
only on forex and metals because volatility is the best. You can also trade
palladium and platinum which are also easy to trade just as gold and silver
are. Gold and silver generally move the same way, so on many occasions
you can trade on both at the same time in the same direction taking profits
on both of them.
All you have to do is draw the angles across your charts right now and
start trading when opportunities start arising. If you do not trade but only
study the charts, growing your wealth isn’t possible. If you limit your
desires because of disbelief and doubt than you are living way below your
means and possibilities keep searching for ways to have more money.
Do not enter the market at any time just because you want to trade. Trade
when you know for sure what is about to happen and you clearly know
where stop loss order must be placed and for how long the market might
be going. If you find yourself in doubts at any time, do not enter a trade. I
can assure you that if you follow these simple rules of trading and use
proper angles as I described and trade only in the direction of the trend you
are on a sure way to fortune. You will quickly learn what the market is
doing on any occasion and your confidence in your abilities will increase
as well.
I highly recommend that you read two of my other books that will give
you an insight into the world of silver and gold investing.
1. Silver Investing: http://www.amazon.com/dp/B00X2ENP8A/
2. Gold Investing: http://www.amazon.com/dp/B00WWUBH12/
All the best,
Don Chauncey
- THE END -
Document Outline
Risk Disclaimer
COPYRIGHT AND DISCLAIMER
Introduction
Chapter 1: Behavior of the Market
Chapter 2: Science of Geometrical Angles
Chapter 3: Defining Correct Price Unit For 1x1 Angle
Chapter 4: Defining Correct Price Unit For 1x1 Angle across All
Time Frames
Chapter 5: Drawing and Using the Gann Fan
Chapter 6: How to Trade on Support Points in Direction of the Main
Trend
Chapter 7: How to Trade When Two Angles Cross
Chapter 8: How to Trade after Consolidation of the Two Angles
Chapter 9: Summary of the Rules
Chapter 10: Money Management
Chapter 11: More Examples and Explanations
Conclusion