GANN MASTER FOREX

Trading Course
Section 1
Basic Tools
• A triangle is a sideways corrective pattern. In the study
of technical analysis, triangles fall under the category of
continuation patterns.
• There are three different types of triangles, and each
should be closely studied. These formations are, in no
particular order, the ascending triangle, the descending
triangle and the symmetrical triangle
• Triangles are formed by two converging trendlines,
each connecting a minimum of two price points. There
are three major types of triangles, differentiated by the
slope of their trendlines: the symmetrical, the
ascending, and the descending triangles. In the
symmetrical triangle the upper trendline is falling at the
same angle that the lower trendline is rising. This price
pattern is bearish in down trends and bullish in up
trends.
• The ascending triangle has a flat upper trendline
and a rising lower trendline. Ascending triangle
is bullish in both up trends and down trends. The
descending triangle is made up of a falling upper
trendline and a flat lower trendline. Wherever
this price pattern appears it has bearish
implications.
• A triangle is completed when the currency prices close
outside one of its trendlines. You can calculate the
minimum price objective for the price move which
should occur after a triangle is completed. Measure the
pip distance between the two trendlines at the start of a
triangle (from the first point to the extended trendline
opposite to it) and project this distance in the direction
of the break. A return move to the broken trendline is
not uncommon.
• When trading triangles you should place your entry
order slightly away from the trendline that is most likely
to be broken: above the top trendline of an ascending
triangle, below the lower trendline in the descending
triangle and in accordance with the prior trend in the
case of the symmetrical triangle. Set your stop-loss
order a few pips inside the triangle and your take-profit
order at the level of the minimum price objective.
• A vertical line (called base) is drawn from the
first point at which the pattern started to the
trendline opposite to it. The point at which the
two trendlines meet is called the apex of the
triangle. Triangles result in strongest breakouts
when the currency price travels no more than
three-quarters of the horizontal distance
between the base and the apex.
• Some analysists use the apex as a time target
for the price move which occurs when a triangle
is completed.
• This method is also sometimes used to predict
when the fifth impulse wave will complete if the
fourth corrective wave is in the form of a triangle.
• Triangles can be best described as horizontal
TRADING patterns. At the start of its formation, the
triangle is at its widest point. As the market continues to
trade in a sideways pattern, the range of trading
narrows, and the point of the triangle is formed. In its
simplest form, the triangle shows losing interest in an
issue, both from the buy side as well as the sell side:
the supply line diminishes to meet the demand.
• Think of the lower line of the triangle, or lower
trendline, as the demand line, which represents
support on the chart. At this point, the buyers of
the issue outpace the sellers, and the stock's
price begins to rise. The supply line is the top
line of the triangle and represents the
overbought side of the market, when investors
are going out taking profit with them.
• Symmetrical Patterns
• So far we have seen two triangle patterns: one, from an
uptrend and bullish market move and one from a
downtrend with a decidedly bearish look. Symmetrical
triangles, on the other hand, are thought of as
continuation patterns developed in markets that are, for
the most part, aimless in direction. The market seems
listless in its direction. The supply and demand
therefore seem to be one and the same .
• During this period of indecision, the highs and the lows
seem to come together in the point of the triangle with
virtually no significant volume. Traders just don't know
what position to take. However, when the investors do
figure out which way to take the issue, it heads north or
south with big volume in comparison to that of the
indecisive days and/or weeks leading up to the
breakout. Nine times out of 10, the breakout will occur
in the direction of the existing trend. But, if you are
looking for an entry point following a symmetrical
triangle, jump into the fray at the breakout point.
• In the slide above we have an example of
symmetrical triangle that formed on the one
minute chart on the USD/JPY pair.
• We must once more notice that the classic price
models may be determined on any time frame.
This happens because the price evolves
fractally.
• We consider thus that the price models are developped
the same on larger structures (big charts) and small
structures (small charts).
• W.D.Gann said: "As Above so below" just as the Bible
preaches.
• In other words the organizing structures on Earth are
similar to the structures of the other plains. There is a
social hierarchy on earth and a heavenly hierarchy.
• In our example on the USD/JPY pair we can easily
notice that prices lower and form a minor descending
trend after entering the lateral consolidation and
forming a symmetrical triangle. It is easy to visualize
and it is very neatly contoured. The triangle, as a
trading model is one of continuation of the trend
movement and also of trend reversal. Evidently a trader
waits for the price to penetrate the support or
resistance line in order to place themselves in selling or
buying.
• We also notice that the triangle is formed practically
between two minor trend lines that converge
themselves. We must also see that the superior trend
line or resistance line formed in the offer zone (minor or
intermediate) and on the inferior trend line or support
line we see a demand area forming.
• Practically the price moves in a tight demand and
supply area and tries to find the balance point between
supply and demand.
• The balance point between supply and demand is
usually formed on the "apex" point of the triangle.
• We will digress a bit here and understand the concept
of supply and demand better, studying in detail the next
course.
• In the capital market there is only one LAW, the "Law of
Supply and Demand"
• All the other technical analysis elements try to
determine the exact supply and demand area. The area
where traders are willing to sell and the area where
traders are willing to buy.
• W.D. Gann built his entire trading system on three
dimensions:
• -Supply and demand (analysis of the evolution of the
price) in ratio with time.
• We said that the symmetrical triangle may seem very
nice on the USD/JPY pair but this time on the daily
chart.
• We can easily notice that it formed a major ascending
trend and is defined between two supply and demand
offers that balanced the tip of the triangle (the apex
area).
• The descending triangle is recognized
primarily in downtrends and is often thought of
as a bearish signal. As you can see in figure, the
descending triangle pattern is the upside-down
image of the ascending triangle pattern. The two
lows on the above chart form the lower flat line
of the triangle and, again, have to be only close
in price action rather than exactly the same.
• The development of the descending triangle
takes the same amount of time as the ascending
triangle, and volume again plays an important
role in the breakout to the downside. (Some
analysts believe that increased volume is not all
that important.
• In the slide above we brought a concrete example of
the descending triangle forming which formed on our
weekly chart on the same USD/JPY in the area 2002.
• You can rewind your weekly chart on this pair and can
easily see that the price was found a descending
movement on a major trend and formed this
continuation pattern of the descending trend.
• We can notice in the above chart that we measured the
triangle height and placed a height in this penetration
area of the triangle model in order to determine the
target area.
• As we can see this target was touched and underneath
the area formed a demand area which rejected the
ascending price movement. If we rewind the chart we
can see that in September 2008, USD/JPY formed a
new descending triangle.
• We notice that the price found itself in a descending
movement and formed a consolidation model and a
continuation of this major descending trend.
• We can notice at the price did not touch the target or in
other words the ideal target forming the demand offer
above. It is best to once more say that the price model
must be permanently monitored to evaluate the price
action. When we read a price a model we must connect
the information that we have.
• We will carefully follow the candlestick patterns that
form on the support and resistance areas, the volume
which the market registers. As we have always said
when a pattern begins forming we notice a growing in
volume. As the price models grow, the volumes lower
and the moment of the registered break is a new
growth in the trading volumes.
• As we've already said, the triangle formations are
extremely common, and we notice them often in the
market on any timeframe and they may appear as
continuation as well as reversal. We'll present the
elements that define the models shortly not before
suggesting the opening of your charts until you find
more triangle formations. Only through exercise will you
understand truly how you can determine a classic
pattern.
• The characteristics of the Symmetrical Triangle figure
• The presence of a strong level.
• The presence of five waves that formed the triangle.
• For the formation of the triangle another (at least) four points are
necessary.
• The triangle must be built so that it is oriented towards the actual
market price and the sides must pass through the minimums and
maximum levels of the five waves.
• If the length of the triangle is equal to L, then in order to identify the
penetration it must find the 2/3L area in the base level or the 1/3L area
in the top. The penetration must be after 1/2L but only up to 3/4L.
Besides this area it might be considered a false signal.
• We open the transaction at the penetration line, the
Stop Loss order is placed under (when buying),
respectively above (when selling) the penetration line.
Worse case scenario, the price reached 75% of the
proposed targets;
• After the penetration the reversal of the prices are likely
in the area of the triangle (of testing), after which the
market will continue its evolution in the direction of the
penetration. The more inclined the sides of the
symmetrical triangle, the more likely the testing.
• Initially the volume of the transactions lower, confirming the
forming of a graphic model after which the transactions
intensify.
• Statistically this model can be both of continuation and also
of inverting the direction. If the graphic model forms at the
end of a well defined trend, then there arises the probability
that it is an inversing of the trend direction. For the behavior
of a model the size in ratio with the previous movement is
important. If the forming of the model takes more time than
the period of a previous movement then there is a high
probability of inverting the tendencies.
• We present above an example of an ideal symmetrical
triangle, formed on our weekly EUR/USD chart around
22.10.2000-28.04.2002. This triangle formed in a long
time period and the target of the price is at a long
penetration distance. As we can notice from the chart,
the penetration took place around the area of 2/3 all the
way to the ¾ base and the target was touched.
• The characteristics of the ascending triangle model
• The presence of a strong level;
• The presence of five waves, that form the triangle;
• For the forming of a triangle there are at least 4 points
necessary.
• The above side of the triangle must be horizontal, only a
slight inclination of this descending line.
• The triangle must be built so that when it is oriented
towards the actual market price, its sides pass through the
minimums and maximum levels of the five waves.
• If the length of the triangle are equal to L, then in order
to identify the penetration it must be found in the 2/3L
base level or 1/3L from the top. The penetration must
take place after 1/2L but only up to 3/4L. Besides this
area we may consider it a false signal.
• We open the transaction , at the penetration area
placing the Stop Loss order under the penetrated area.
The target of the profit is the height of the basis of the
triangle from the penetration area.
• After the penetration, the reversal of the price becomes
possible at the triangle (testing) area, after the market
continues the evolution of the penetration continuing.
• Initially the volume of the transactions lower, confirming
the forming of a graphic model after which the
transactions intensify.
• The ascending triangle, may also be a change of
direction figure of the evolution of the price.
• The change of trend direction is not as well expressed
as in the case of the symmetrical triangle, but in this
case the properties of that respective triangles depend
on the side of the trend where it formed and how it
tested during its forming.
• In the figure above the EUR/USD four hours chart, in
the 21.07.2007-29.07.2007 we have a ascending
triangle representation. The figure corresponds to all
the rules we wrote above. The target was swiftly
touched, after the market continued its ascending
evolution.
• The descending triangle represents an ascending
triangle drawn upside down. It has its lower side
(support line) horizontally. After the formation of such a
figure, the evolution of the price continues in a
descending direction. For the descending triangle is
valid for absolutely all rules which we have written
down in the case of the ascending triangle.
• In the above figure we present the descending triangle
formed on the stock price charts of the American
Express Co, 4H, around 21.06.2004-08.07.2004. In this
case, the figure is of trend inverting formed at the
ending of an ascending movement.