W.D. Gann's Time Constraints on Market Prices

When the Spiral of Prices Meets the Cycle of Time

Mar 23, 2009

The most influential aspect of Gann's work was his observation that time is a major constraint on price movements. When time "runs out" the market is ready for a reversal

W.D. Gann is a well-known market trader who established his own forecasting techniques based on price and time. He considered that time, as measured according to divisions of the circle, exerted a controlling influence over the price spiral depicted in his price square.

Gann correlated his circular time with natural cycles experienced on earth. His idea was to place the divisions of the circle representing days, months, quarters, over his square to represent a natural constraint of time.

The Gann square is a tool used to measure the likelihood of support/resistance on the chart, due to both price and time constraints, and therefore forecast market reversal points.

Circular Time Measure

Since the smallest effective unit is one degree and there are 360 degrees in a circle, it was natural to approximately correlate one degree with one day of a 365-day year.

The circle was also broken down into quarters, representing the seasons of the year. This was particularly important for the analysis of commodities, which depend on the seasons of the year.

Finally, the circle was broken down into twelve units representing the months of the year.

Correctly Setting the Clock - Time by Degrees

If each of the main divisions of the circle was going to represent a potential turning point, the starting point had to be correctly established. Gann let each of the 90-degree divisions of the circle represent the beginning of the seasons, as defined in astrological terms:

The process ensured that the 0 degree line cut through the part of the spiral in the price square (see figure 1), which contained the actual price ruling on the first day of spring (March 21).

If a price in the square subsequently occurred on the same day as one of the important dividing lines, then a reversal could be expected. The important lines were three months, six months, nine months and one year from the initialization of the square.

Natural Circular Time Units

Gann’s second approach was to use time units independently of the price square. He found that prices would often reverse in direction after the elapse of a time period derived from particular number sets:

The Rule of Three in Time

Similar to the rule of three in prices, Gann found that a reversal was very likely if multiple time periods coincided simultaneously. That is, measuring forward from successive historical turning points (highs or lows), the coincidence of three or more time divisions taken from one of his number sets, on a particular date, would likely mark a reversal.

In summary, Gann's theories suggest that there is only a limited number of time cycles, derived from only a few number sets that can impact on prices. Since cycles come from the same number set, they bear a mathematical relationship to one another. Finally, cycles appear in harmonic clusters due to the coincidence of at least three numbers from the same set.

The copyright of the article W.D. Gann's Time Constraints on Market Prices in Investment is owned by Harry P. Schlanger. Permission to republish W.D. Gann's Time Constraints on Market Prices in print or online must be granted by the author in writing.