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Gann Analysis and Nasdaq

10/02/02 10:41:40 AM
by Koos van der Merwe

W.D. Gann was probably one of the most controversial market gurus. Rumor has it that he made millions of dollars trading the market with his mathematically-based trading systems. When he died, he left a study full of papers, and a friend, David Ezekial, was lucky enough to look at his study with the intention of bidding for the reams of notes and papers. Needless to say, his bid was not accepted, but he told me that he was overwhelmed by the amount of research Gann had done.

Security:   OTC
Position:   Accumulate

In studying the works of Gann, trying to find out which strategy of the many he experimented with, was the one he used to make millions, I found that his cyclical counts were among the most accurate of the ones I examined. Gann calculated his cycles from a circle. In other words, 360 degrees, half of which is 180, then 90, and 45. He then broke it down further, ignoring fractions to 22 (half of 45) and 11 (half of 22), and stopped there.

Once he had identified these "primary" numbers, he then started from 11-days as the first possible turning point, with 22-days as the second and so on. We therefore have the numbers, 11, 22, 33, 45, 56, 67, 78, 90, 101, 112, 123, 134, 144, 155, 166, 180, and so on with 360 as his final day, although long term charts do continue to higher numbers. I have however, stuck to those numbers above, usually starting a new cycle at a major turning point.

In the numbers above, I have highlighted the "nodal" numbers in red. These Gann considered to be major turning points. The number 101 to 112 (in green), he called the "Death Zone" believing that major market lows would take place around this time zone.

To make matters more confusing, he would then not ignore the numbers 7, 13, 26, 39 52, 65, 78 -- in other words multiples of 13. These alternate numbers would be inserted in his charts, and looked at as possible turning points in and around one of his primary numbers. This profusion of numbers led cynics to believe that no matter what, there was always a number available that matched a primary turning point, and they were not that wrong. In my years of research, I found that I only liked looking at the numbers 13 and 39 of the alternate numbers. The other multiples of 13 tended to merge with his primary numbers. I also ignored his time and price squares, simply because I looked for the KISS principle in all my analysis, and although the above looks like a complicated nightmare, it is, in actual fact, very simple.

NASDAQ as seen by GANN Cycle count
Graphic provided by: AdvancedGET.
Finally, Gann never ignored the four solstices of the year -- the 21st - 22nd of March (allow a two day error on either side), June, September and December. These dates he believed, took precedence over any other date. In the chart, below, the 180 day turning point coincided with the 24th of September, making it significant, although the solstices of March and June didn't shape at all, So although I keep solstice points in the back of my mind, I don't necessarily mark them on my charts. Advanced GET allows the user to define and color all the above in a chart. I usually start a count from a major high or low.

In the above chart of the Nasdaq, I have colored the primary numbers in blue, and the alternate numbers in red. I have also included Gann angles, which I will discuss in a future article.

I started the count from the Nasdaq high of 2098 on the 9th of January 2002. I chose this point because the index followed the 1x1 Gann angle beautifully. Note how the index turned down on day 39 (red) turned once again at 78 as it bounced off the 1X4 line, made a high at the 90 day number, and fell to the low of 1192 before making a double bottom at the 144 time period. It then moved up to a high of 1426 on August 22, at the 156 time period, and is now testing the 180 time period, testing the low of 1192 for the third time.

This is significant, and by all accounts, the Nasdaq should start rising from this level. If it does not rise, then it could meander here until a more positive reason for a further rise happens. A decisive break below 1192 will be dramatic, causing the index to test new lows, possible at 1165 (point and figure horizontal count) or 1091 (P&F verticle count) target levels. If I accept the 180 time period as a turning point, I pick up the dates November 19 (39) and November 27 (45) as future dates to watch. But before I accept the 180 time period as a major turning point, I would like to see a more definite upward break, for example, a break above the 1344 pivot point.

Enjoy playing with Gann numbers as possible turning points. Elliott wave enthusiasts will happily identify a 5-wave count down from the high of the chart, but more about Elliott and Wave theory at another time.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Comments or Questions? Article Usefulness
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Date: 10/03/02Rank: 3Comment: 
Date: 10/03/02Rank: 5Comment: 
Date: 10/03/02Rank: 5Comment: 
Date: 10/07/02Rank: 3Comment: too generic and confusing. Are you talking simple or exponential or doesn t it matter? This is as confusing and obsufucating as Gann himself.
Date: 10/09/02Rank: 2Comment: 

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