The Gann Fan: Understanding the Magic Behind the Tool
Are you a fan of the Gann?
“People are afraid of what they don’t understand.” Some see a chart with a lot of lines on it and freak out. Others panic, simply b/c it’s too much to look at or understand. Don’t. Once you understand how to use tools like the Gann fan, and understand what you are looking at, it becomes easy to apply them to any chart or scenario for the benefit of your trading.
We should all note that the market rotates from angle to angle. This is referred to as the “rule of all angles”. The rule states that when the market breaks one angle, it will move toward the next one.
Of all of William Gann’s trading tools, Gann fans are the most well-known. For decades, the tool has been utilized to identify support and resistance levels and predict future price movements utilizing this rule of all angles.
How to Chart the Gann Fan Effectively
Gann believed that the stock market is geometric, cyclical and predictable. The key to his entire system is an ideal angle drawn across a price trend at 45 degrees. This is huge, and must be a true 45 degree angle relative to price action. The only way to be sure your charts are scaled correctly prior to measuring is to have your chart set to “auto scale.” If the angle of the 1/1 line is not at 45 degrees, the tool is essentially useless and misleading. An easy way to ensure this is accurate would be to draw out 45 degree angles from a high or low as shown below on the USOIL 60.
Update: The best way to get the perfect gann fan 45 degree angle every time is to use the gann square tool. Once you’ve overlaid the square onto your chart, open the settings and make sure all available fan levels are visible. Then make all arcs and levels not visible. Now each time you drop the fan, the angle will always be a perfect 45 degrees without having to measure.
After you have established a 45 degree angled trend line, simply trace the Gann fan tool directly over it as shown below:
There are 4 lines above and 4 below this ideal 45 degree angle, all originating from the same price point and extending into the future at different geometric angles. The overall shape of the tool resembles a traditional Chinese hand fan, hence the name.
Support and Resistance
The 9 lines you’ve created all share support and resistance, and are strongest toward the middle of the fan. Look at them like the 1/1 is the big brother, with the 2/1 being the second youngest, the 3/1 being the third, and so on. I’ve drawn two on the chart above, one from a low and one from a high. The yellow areas below highlight that are obvious points of support or resistance to price action.
Consolidation and continuation patterns form when two fans form effective support and resistance levels. The tool follows standard breakout/breakdown rules when a support/resistance level is broken. Gann believed that as soon as price action completed a confirmed support or resistance line break, the broken line would then act as a barrier in the opposite direction (support becomes resistance and visa versa). This is exactly the same as standard support and resistance theory.
The Gann Fan packs and punch, and can open your eyes to a world of support and resistance that you haven’t experienced before. Couple it with distinct technical patterns like the rising wedge, or ascending broadening wedge, and it can help you determine key entry and exit points.
If your broker doesn’t provide Gann tools in their charting software, you might consider a different one. Read more on Best Brokers for Most Given Situations. If you still want to keep your broker, but want to upgrade charting abilities, consider using TradingView in tandem with placing trades through your broker.
Hope you learned something today. If so, share it with others.