Gann Fan Trading Strategy — What Is It? (Backtest)

Last Updated on September 22, 2022 by Oddmund Groette

You may have seen the Gann Fan in your trading platform and be wondering how to use the tool for trading. Well, you are not alone; many want to know the Gann fan trading strategy.

The Gann fan trading strategy is a complex support and resistance trading strategy that uses diagonal support and resistance levels derived from important highs and lows to analyze price movements and identify breakouts. It is based on the theory that movements in price follow geometric angles. The strategy uses Gann Fan, which is a technical analysis tool that consists of several lines going from one point in several directions, with the main Gann Angle at 45 degrees.

Here, we take a look at Gann fan (and make a Gann fan trading strategy) and how to use it.

What is the Gann fan?

The Gann Fan is a technical analysis drawing tool that is used to indicate time and price movements from important highs and lows. It consists of several lines (9 diagonal lines) going from one point in several directions, with the main Gann Angle being 45 degrees. The series of lines are called Gann angles, and they fan out from the selected point. The Gann fan and Gann angles were created by legendary stockbroker W.D. (William Delbert) Gann.

The 45-degree line is known as the 1:1 line. The reason is that the price will rise or fall at a 45-degree angle when the price moves up/down one unit for each unit of time. The other lines in the Gann fan are drawn above and below the 1:1 line and are associated with 2:1, 3:1, 4:1, 8:1, plus 1:8, 1:4, 1:3, and 1:2 time-to-price moves.

Gann fan
Gann fan

The Gan fan indicator is plotted over a price chart to show potential support and resistance levels, which can help technical analysts predict where the price is likely to reverse or break out.

What is a Gann fan strategy?

The Gann fan trading strategy is a complex support and resistance trading strategy that uses diagonal support and resistance levels derived from important highs and lows to analyze price movements and identify breakouts. It is based on the theory that movements in price follow geometric angles.

The strategy uses the Gann Fan, which plots about nine angled lines from a selected swing point — a swing high or a swing low. The slopes of lines show the relationship of the price movements to time. The movement may be relatively fast or relatively slow, depending on the size of the Gann angle. Traders use the angled lines to identify dynamic support and resistance levels, which help them to predict price changes, such as a potential reversal or breakout.

According to W.D. Gann, certain geometric patterns and angles held unique characteristics that could be used to correctly predict actions in both price and time. He believes that the lines can indicate future instances of time and price movements from important highs and lows, and thus, help identify possible price breakout levels.

Based on Gann’s technique, the price moving along or above a trendline of 1×1, which is at angle 45 degrees, represents a strong bull market. On the other hand, the price breaking below this trendline could signal the emergence of a bearish market. In essence, Gann’s technique expects equal time and price intervals, which is the case the prices rises or falls at an angle 45 degrees in relation to the time axis — one price unit rise for each time unit (which is why it is called the 1×1 line).

Gann fan trading strategy
Gann fan trading strategy

Gann fan vs. Fibonacci fan

While both the Gann fan and the Fibonacci fan are based on mathematical sequences, they don’t represent the same thing. The Fibonacci fan is based on the Fibonacci ratios, such as 23.6%, 38.2%, 50%, 61.8%, 78.6%, and so on.

Gann fan vs. Fibonacci fan
Gann fan vs. Fibonacci fan

The Gann fan, on the other hand, is based on a price-time relationship, with the 45-degree line representing a 1:1 relationship (when the price moves up/down one unit for each unit of time). All other lines in the Gann fan are drawn above and below the 1:1 line, in accordance with their own ratios, such as 2:1, 3:1, 4:1, 8:1 and 1:8, 1:4, 1:3, and 1:2 time-to-price moves.

Gann fan strategy
Gann fan strategy

Gann fan accuracy

As with all trading indicators, the Gann fan is not always accurate. There is no rule that keeps the price moving at any specific angle, as price movements are often random. The various levels indicated by the Gann angles may or may not signify any support or resistance level.

Nonetheless, the Gann tool offers another way of looking at price movements and analyzing the slopes of price trends. Before you think of using it in your trading, make sure you back-test it to know whether it has any merit.

Gann fan strategy (backtest)

A Gann fan trading strategy is coming soon.

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