FOREX FOCUS

Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS& COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.

Gann And Forex

by Cornelius Luca

Apply Gann lines to currency pairs.

Famed stocks and commodities trader William Delbert Gann (1878-1955) was known not only for his profitability but also for his influential set of technical tools. Gann refined several mathematical methods that combined time and price analysis. The complex result helped him make 264 successful trades out of 286 transactions in various stocks in only 25 market days during October 1909 -- an incredible feat for a trader!

Gann identified four different phases of the market, which his methods can be applied to: bull, peaking, bear, and bottoming markets. The most important features of Gann analysis are:


GANN GEOMETRIC FORMS

W.D. Gann used basic forms of geometry: squares, circles, and triangles. Let's look at circles first. A circle has 360 degrees, and this number, along with fractions of 360, is widely present in Gann's research. In order to reach his time targets, he extrapolated 30, 90, 120, 180, and 360 days from significant chart points. These forward periods are potential reversal dates. The secondary reversal dates are 45, 135, 225, and 315. (See Figure 1.)

FIGURE 1: APPLICATION OF THE GANN GEOMETRIC FORMS ON CIRCLES. These numbers point to possible reversal dates.

You can also plot the number of weeks in a year around the circumference of a circle. If you divide the circle into quarters, you will obtain the following numbers: 13, 26, 39, and 52 weeks. Any of these dates from a significant peak or trough should be targeted for possible trend reversals. (See Figure 2.)

THE GANN EMBLEM

Using a combination of geometric shapes, Gann designed yet another method to target possible price reversal dates: the Gann emblem. The emblem is formed by a square and a triangle inscribed in a circle, where the square and the triangle have a common corner. The common corner is referred to as the emblem pointer (see Figure 3).


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Originally published in the May 2007 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2007, Technical Analysis, Inc.