Forex

In the early 20th century, commodity trader W.D Gann pioneered a set of trading techniques that have gained widespread popularity. Today, there are lots of techniques associated with Gann but they mainly come in 3 forms - Lines, fans and grids / squares.

The technique we're going to specifically talk about today is the Gann "Square of Nine". This is based on numerous mathematical and geometrical properties. At the center of the grid we have the number 1, then moving to the left we have 2, followed by the rest of the numbers arranged in a spiraling fashion.

At the center of the grid we have the number 1, then moving to the left we have 2, followed by the rest of the numbers arranged in a spiraling fashion.

If we consider the grid to be enclosed by a complete 360 degrees circle, and the spot directly to the right of number 1 to be 0 degrees...

Then the numbers 1, 6, 19 represent 0 or 360 degrees. The numbers 3, 13 and 31 represent 225 degrees. And the numbers 4, 15, 34 represent 270 degrees.

The idea behind the Gann "Square of Nine" is simple - Each price has a counterpart that is a certain degrees away from it.

Don't worry if you do not know what this means now as I'm going to walk you through the process.

To get started with trading "price" using the "Square of Nine", you'll need a Square of Nine in front of you, preferably in hard copy. You'll also have to identify a major high or low price point of the stock or commodity.

Step 1: On the Square of Nine, locate the grid in which your major price point lies in.

For example, if the major high/low price which you have identified is $22, then look for the grid which 22 lies in. For purposes of explanation, let us assume that the price we're looking at is $22.

Step 2: Draw a straight line that starts from the center grid and cuts through the grid which 22 is in. This shall be the 0 degrees line.

Step 3: According to Gann principles, potential reversal points are 45 degrees apart.

Hence the first potential reversal point will be found at 45 degrees, followed by 90, 135, 180, 225, 270, 315 and 360 degrees from the 0 degrees line.

Step 4: Starting from the 0 degrees line, measure a 45 degrees angle in the clockwise direction. You'll notice that this line cuts through a number of "prices", such as 8, 24, 47 and so on.

In this case however, we're only interested in a price that is higher than the starting price of $22. Hence the first potential price reversal point occurs at $24.

Step 5: Repeat this process by drawing another 45 degrees line from the one you've just drawn in the clockwise direction. What price should you arrive at?

Step 6: To complete the process of identifying all 8 potential price points, repeat Step 5 till you are finally back at the original 0 degrees line.

Here are the potential price points which you should have obtained:

24, 26, 29, 32, 35, 38, 41 and 44

You'll notice that these potential prices are all higher than your original price of $22. In Gann, they are known as the potential "high" prices. To find the potential "low" prices, simply repeat Steps 1 through 6 above. But instead of selecting the price that is higher than the starting price of $22, we will choose the price that is lower for each intersection