Gann Pyramid

Named after William Delbert Gann, the theory was never explicitly presented and it is looked up to by many but few probably really grasp theory as a whole. Mr Gann came up with the theory around the 1920s and is still of interest today. Here we will just attempt a practical approach for some of the reasoning behind the basic theory.

Gann’s methods are basically a way of using geometry and numerical relationships to try to forecast market’s possible behaviour. Gann’s methods rely on historical tendencies or cycles with a belief that what happened in the past will happen again, as the basis of human sentiment (which drives the market) does not change. However one must mention that writers who have attempted the study of these methods have also pointed out that Gann methods are not meant to be used in isolation but should ideally be used in conjunction to each other.

Imagine a circle outlining the grid above, and that the circle is segmented in quarters and other major angles. The Price levels are located at the major angles that are 0°, 45°, 90°, 135° etc. The basis of this numerical approach lies to the assumption that market prices tend towards squares of different numbers, but also to intermediate numbers located between two squares. Let us observe the relationships between the squares of the numbers 1 to 11.

The squares marked in red are the odd squares and they in fact make the most important line, that is 1,9,25,49,81,121 etc. The intermediate points between the squares is also of importance, for example the midpoint between 100 and 121 is 110.5 or 111, and in fact 111 lies on the yellow very important line and is the next corner after we breach the 101 number is 111.

The 90,180,270,360 degree angles are referred to as the Main cross, which describes as the most important reference for support and resistances. The 45,135,225,315 degree angles make up the Ordinal Cross, described as the second most important line.

The Grid starts at the number one in the centre and increases by one unit clockwise. Gann’s pyramid is also referred to as the square of nine because the first square counts to nine. It is basically a way of using geometry to forecast market’s possible behaviour. The Grid proposes that a price continues moving in a direction within an angle until it breaks that angle.

The Theory in practice

The Graph below shows key supports and resistances for EUR/USD (1year/Daily):

Note how a very good majority of the supports and resistances met are key numbers on our Gann pyramid. Starting at 1.5142 or 151(on our Gann Pyramid)the point lies on the major cross at the 90 degree angle now having hit this very important line the currency pair is expected to flow to the next corner, in our case 145 it breaches 145 aiming for the next corner (133); at 1.4217 or 142 the point lies on the green line lying on the angle intersecting the 45 degree angle (the 22.5 degree line) at this point the pair will go to the next point (145 or 139) points on the green line may stop and reverse the direction of the trend, in fact it reverses the trend and goes back to 1.4559 or 145 again on the 45 degree line but after hitting the 145 (still aiming for the next corner at 133) breaches 142,139,136 till eventually breaching 133, and so forth.

Numbers falling on the most important line: if one of these numbers is breached the pair is expected reach the next number on the most important line, that is make a full 360 degree journey to the next number on the very important line (but at least to the next corner). Ex if 49 is breached; the price should go up to 81. Numbers on the very important line: if this point is breached than the pair is expected to reach the other number on the very important line, situated on the next corner of the square. Ex if 65 is breached; it is expected to go to 73. Numbers on the line of minor importance: are seen as a resistance which can stop and reverse a trend. When such point is broken the price is expected to go on the next line.

Which means in practice that if EUR/USD is at the moment holding at the 1.3600 level (going down from 1.4280{where we’ve experienced the change of trend}) we can either expect a change of trend back to 1.3900, if 1.3600 holds – alternatively if 1.3600 breaks we should expect a fall to the next point on the next line, that is 1.3300 level. This is only a practical understanding of some fundamentals underlying the Gann method. Other factors involve time for example.