Price Time Volume Investing

My interpretation of the Gann Square of 90 is that it is a very simple method to measure the strength of an entity over the course of a significant time cycle - 90 days. The more I look at Gann squares, the more I believe that Gann was not directly concerned with price. The squares are meant to measure time. The absolute price levels do not mean anything. (How the “Y” axis is scaled is meaningless.)

The relative price levels are important in that they measure the strength of a move against the strength it previously had. (And can be used to “guess” the strength of future moves.) The law of vibration in the market - and probably the universe - is dominated by multiples of 2 and 1/2. The obvious place to look for a change when an entity accelerates is the magnitude of the previous run - or two times the previous range. When a trend changes, the obvious place to look for support/resistance is at 1/2 of the magnitude of the previous trend. Gann’s squares are tools that take advantage of this natural characteristic of the law of vibration.

To apply this to markets, Gann found that any change will tend toward 1/2 of the previous level. Gann said many times that when price broke an angle, it would naturally be drawn to the next angle in the direction of the move. A breakdown of a 1:1 angle would move price/time slope to the 1:2, then the 1:4, and finally the 1:8. A break above the 1:1 leads to the 2:1, 4:1, and then 8:1 angles. At times even the 16:1 comes into play but that is usually for a very short period of time.

Gann squares (including the square of 90) have three types of Gann Angles.

1. Horizontal price levels (usually broken into 1/8 increments)
2. Vertical time cycles (usually broken into 1/8 and 1/3 increments yielding 11.25 and 30 days on square of 90)
3. Slopes (price / time) and increments of these.

Ignoring the sloped angles on the square of 90, we can watch for price change any time price hits one of the 1/8 divisions or the time cycles at 11.25, 22.5, 33.75, 45, 56.25, 67.5, 78.75, 90. Time also influences price at 30 day increments.

In the horizontal direction, it becomes more difficult. I have found that using the price range of the previous move broken into 1/8s works well. In the square of 90 some use 90 points. This can work if price is a fractal of 90. But my opinion is it is pure luck if the increments of price tied to 90 work out. Actually, it doesn’t matter because we are trying to gauge the current move using the closest angle on the chart. We can then use the angles of previous moves to determine the relative strength of the current move.

The third angles are sloped lines derived by price over time. A move at a 1:1 angle is one unit of price per unit of time. A move at an angle of 2:1 is two units of price for each unit of time. On the square of 90, it doesn’t really matter which angle price follows (because the price axis is arbitrary – say 90 points to the top of the square). It is important to know that whatever angle is being followed, a break of that line will lead to two times or one-half the slope.

Let’s assume price is following the 1:4 slope on the square of 90 for a specific entity. (Remember which angle price is following tells us nothing of the strength of the move since the “Y” axis is arbitrary.) Now assume price weakens and falls below the 1:4 angle. We can expect price to fall to the 1:8 line because of the law of vibration and multiples of two. This is the value of the square of 90 (or any Gann square). If there are no vertical (time) or horizontal (price) lines between the break below the 1:4 angle, then a high probability bet can be made that price will hit the 1:8 angle. Of course, many times a horizontal or vertical angle is between the sloped angles and must be watched for a change also.

The use of the square of 90 is to watch for movements at time cycle points and predict where price is going and when it will get there based on doubles and halves. Ninety days is a critical time cycle for stocks and stock indices. The square of 90 provides a tool to watch angles as well as to monitor time.

Note: This blog is Gannish in nature. That means that a lot of my analysis is inspired by the works of WD Gann. Gann “purists” may not find my posts useful. That is fine. I have yet to find a Gann “purist” who actually makes money in the market. This post is a continuation of a series of posts in which I provide how I use a specific Gann concept. If a reader has more information, I have no problem with comments disagreeing with my post. I also am open to posting thoughts from readers as separate posts. Feel free to send an email to me with your essay on a Gann topic and I will post it as emailed - assuming it makes sense.

Previous Method Posts :  Square of 9 and Scaling the Square of 9

Post Modified: July 3rd, 2008 at 12:33 am

Tags:   Gann Angle Fan · Price-Time Balance · Square of Range · Square Out4 Comments