Introduction to W.D Gann Swing Charts

 

Any trader or investor who enters the market will start trading using tips from friends or colleagues, stock recommendations from forums, T.V and news.
After blowing the account, many will leave the market and the people who are resilient will begin to realize that the only way to master the trading is through learning Technical Analysis. They will start looking for Holy grail trading system using all kinds of indicator available in the chart and books.
The fascination of  new Indicators and trading system available makes the trader excited. He will be looking for the ultimate holy grail system which will work  in all kinds of market using the indicator. The fascination dies slowly after few months or may be  few years of trading due the trading results.A trader will realise that there is no holy grail trading system exists in the market. Each trading Indicator works differently at certain times and it is important to trade as per the trend of the market .  A trader finds very difficult to identify a trend due over complex systems he learnt.
If you sounds similar and still struggling to find a system to identify market trend.Then let me introduce to you a simple and wonderful pattern  by W.D Gann “Trend Indicator”. A Trend Indicator chart is also known as  Gann Swing charts. Gann Trend Indicator or Gann Swing charts can be used in all kinds of markets and time periods like monthly,weekly,daily and hourly.

Gann Trend Indicator or Gann Swing charts
A Gann Trend Indicator follows the up and down movements of the market.   There are three kinds of Gann Trend Indicators
  1. Minor Trend Indicator or 1 day bar indicator.
  2. Intermediate Trend Indicator or 2 day bar indicator.
  3. Major Trend Indicator or 3 day bar indicator.
A trend line starts from a low price and continues to move lower(I prefer to start from low rather than top), if the market makes higher high than the previous bar, the trend line moves up from the low of the previous bar to the high of the latest bar.  The low price will now become the bottom. The trend line will move from high to high until the market makes lower low than previous high.Once the market makes the lower low, the trend line moves from the high of the previous bar to the low of the latest bar. The high price will now become the Top. The Trend line from bottom and the Top forms a swing.
Once a bottom is formed the trend line moves from high to high until a lower low is formed on the bar , once the lower the low is recorded the high becomes a top and the trend continues to move to the low prices unit a new higher high is recorded.  Trend line moving from a top to low price does not make a trend change to down and similarly a trend line moving from bottom to high does not change the trend to up. A trend change is considered only when the trend breaks the  last bottom for downtrend and last top for uptrend.
The Minor Trend Indicator or 1-bar swing chart:
The Minor Trend indicator is constructed using 1 bar movement. The trend line from a low price , if the next bar makes higher high , then the trend line moves up from the reference bar and makes the lower low a minor new bottom. Similarly if from a high price if the nex bar makes lower low, then the trend line moves down from the reference bar makes the high price a  minor Top.As each new bar makes a higher-high, we can continue to move our line up to that new high. If a following bar lower-low, the trend line moves down and continue to move down until a new high high is recorded.
A minor trend indicator is used for short term. I don’t like using minor trend for trading due to false signal it generates. Traders gets fascinated by the minor trend due  to the frequent swings it produces. Trading minor trend needs strong risk taking capability and money management skills.  People who can not adopt quickly to changes are not suitable for trading in minor trend. I prefer using Minor Trend indicator for fine-tuning an entry. I trade using Intermediate Trend Indicator for trading and Main Trend Indicator for overall market trend.
The Intermediate Trend Indicator or 2-bar swing chart:
The Intermediate Trend indicator is constructed using 2 bar movement. The trend line from a low price , if the next consecutive 2 bars make higher highs , than the trend line moves up to high of the third bar from the low of the reference bar and makes the lower low a new intermediate bottom. Similarly if from a high price if the next two  bar makes lower low, then the trend line moves down from the reference and makes the high price a new intermediate Top.
As each new bar makes a higher-high, we can continue to move our line up to that new high. If a following bar then makes a lower-high and lower-low, our line does not move up and our down count is one. If price resumes the upside move and makes another higher-high than our current highest high  our line would continue up to that new high, and every higher-high until we actually get two lower-lows to change the line direction.
Major Trend Indicator or 3 day bar indicator.
The Major Trend indicator is constructed using 3 bar movement. The trend line from a low price , if the next consecutive 3 bars make higher highs , than the trend line moves up to high of the fourth bar from the low of the reference bar and makes the lower low a new intermediate bottom. Similarly if from a high price if the next three bar makes lower low, then the trend line moves down from the reference and makes the high price a new Major Top.
As each new bar makes a higher-high, we can continue to move our line up to that new high. If a following bar then makes a lower-high and lower-low, our line does not move up and our down count is one. If price resumes the upside move and makes another higher-high than our current highest high  our line would continue up to that new high, and every higher-high until we actually get two lower-lows to change the line direction.
GANN Trend line Indications:
Major trend: The direction of the majority of the stock moving is called major trend. If the share is moving up, it is uptrend and if moving down it is downtrend.
Minor Trend: The direction of the stock which is against the main trend is called minor trend.
GREEN TREND LINE:
The green trend line indicates the uptrend of major trend or minor trend. The green trend line is used in bull market. When the stock is making higher bottoms and tops each period, the first week the stock made higher top and higher bottom , the line move up to high of the period. The line will be moved to high each period until it makes a lower bottom than previous period.
Red Trend line: The first period the stock makes a lower bottom than previous period the trend line changes to read and moved to the low of the period. The line will be move to the low  for each period until it makes a new higher bottom and higher top.
Buy when the Red trend line changes to green.
Sell when the green trend line changes to red.
The green trend line and red trend line can be used on all three trend indicators we discussed.

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