The Ultimate Gann Course teaches us to identify Classic Gann Setups and to trade them with safety. There are five elements to a Classic Gann Setup – Time, Price, Position, Pattern and Volatility. Most Gann traders will focus on the first two of those – Time and Price – and use them to come up with trading setups in the market. This is fine, but it’s not enough to base a trade on. Let’s look at an example.
In Chart 1 below, you can see that the Euro/US Dollar currency pair (FXEUUS in ProfitSource) was approaching a big picture 50% retracement level around 180 degrees after the major high on 16 February 2018.
Chart 1 – Approaching a 50% Retracement on a Time by Degrees Date
In addition to this, we had two sets of Range’s clustering around the 1.1447 level of the 50% retracement, giving us three milestones, all tightly locked at the same level. This is shown in Chart 2 below.
Chart 2 – Repeating Ranges into a Price Cluster
Now, I really liked the look of this cluster. The problem was, however, that the market didn’t really care! It just broke straight through that Price Cluster and closed below it. How rude! This is shown in Chart 3 below.
Chart 3 – The Market Rudely Ignores My Price Cluster
This Price Cluster looked pretty good – and it was approaching a Time by Degrees date. But that didn’t make it a Classic Gann Setup. Time and Price are only two of the five elements of a Classic Gann Setup. We have ignored Position, Pattern, and Volatility. In this case, I was reasonably happy with the Volatility of the market leading into the Cluster, although it is much more volatile now of course! As for Position of the Market, I believe that the January 2017 to February 2018 move up was the First Large Range Out from the major low in January of 2017, so I am looking for a new low to start a second large section up. So, the cluster looked good in terms of Position of the Market. That just leaves ‘Pattern’.
Interestingly, Pattern is one of the first things covered in the Ultimate Gann Course. It is discussed in detail in Chapter 2 – Key Form Reading Concepts, and I would encourage you to take the time to open this chapter up and read it through in detail, and to familiarize themselves with the different pictures of Signal Bars, so that you can recognize them when they appear in the market. Don’t worry too much about the names of the Signal Bars, just recognize what they are telling you. Signal Bars are really just an extension of the Thermometer indicator David teaches us in the Smarter Starter Pack. Just focus on the Open and Close pattern to read the strength of the market.
So, how do we use Signal Bars? Like everything in trading, Signal Bars are not a standalone indicator. We look for them when we have a Time and Price Pressure Point in the market. Let’s use our Euro example from above. The cluster of prices came in between 1.1440 and 1.1450. A simple way to incorporate Pattern here is to wait for the end of the day and see if we get a Signal Bar. A Signal Bar is the final piece of the puzzle to convince us to take a trade. It is still not a guarantee – but it is a final piece of confirmation before we pull the trigger to get into the market. In many cases, if a Time and Price Pressure Point fails as this one did on the Euro, the market will simply run straight through it, and you won’t get into the trade. No damage is done to the trading account, just the ego.
So, where to now for the Euro? As I write this on 17 August, I think the Quarterly swing chart tells a very interesting story. You might want to check it out! You can scroll down for a chart, but you won’t find one, you’ll have to actually open up ProfitSource, open a chart of EC-Spotv or FXEUUS, and open a quarterly swing chart.
All the best