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An extremely important distinction Gann made was in which kinds of charts to use. For instance, Gann did not believe in using space charts, also known as “point-and-figure” charts, because they do not con- tain the critical time element, instead displaying price only. The other type of chart that Gann said was most likely to fool traders, by producing false moves, is the daily bar chart. The weak point with these charts is the fact that they show the minor moves, which Gann likened to the ripples in the ocean caused by a pebble. They do not disturb or determine the big move or main trend. Most traders use this kind of chart.

Gann believed that the best charts to use are the weekly, monthly and yearly charts. Gann liked using longer-term charts because they show more time, and the more time a chart shows, the more reliable

Gann believed that the best charts to use are the weekly, monthly and yearly charts. Gann liked using longer-term charts because they show more time, and the more time a chart shows, the more reliable are its indications.

“The weekly and daily high and low charts are valuable when the markets are very active and are good to use on very high- priced stocks at the time they are culminating or in the final grand rush, because the daily and weekly will show the first change in trend . . . But the best guides in long-pull trading and determining the main trend are the yearly and monthly high and low charts.”

are its indications. “The weekly and daily high and low charts are valuable when the markets are very active and are good to use on very high-priced stocks at the time they are culminating or in the final grand rush, because the daily and weekly will show the first change in trend,” he wrote. “They are better to use at the tops of fast moves than they are at the bottom. However, when markets have a quick, sharp, panicky decline, then the daily and weekly charts will help, but the best guides in long pull trading and determining the main trend are the yearly and monthly high and low charts.”

Later in his life, Gann urged his students to also use quarterly charts in their attempts at determining market trends. In one of the last books he wrote,

How to Make Profits in Commodities (1951) Gann

had this to say about the quarterly chart:

“The more time period used in a chart, the more important it is for determining a change in trend. By a quarterly chart, or a seasonal chart, we mean a chart using the four time periods or seasons of the year. We use the first three months of the year — January, February, and March. Then we use the high and low prices of wheat, soybeans, or other com- modities for these three months, the winter quarter. Next, we use April, May, and June to complete the spring quarter. After that, July, August, and

September for the summer quarter. Last, October, November, and December for the fall quarter. This makes four periods, of three months each, in each year. Study a quarterly chart carefully, and you will see how these quarterly periods show when an

important change in trend takes place. Observe how many times, after a prolonged advance or decline, the first time prices break the bottom of a previous quarter it indicates a change in trend, and a bear market starts. The first time the prices of one quar- ter exceed the high levels of the previous quarter, it nearly always indicates a change in trend, and a bull market follows. If you will study any quarterly chart carefully and note the position of wheat, or any other commodity, in connection with the monthly high and low chart, and the weekly high and low chart, you will find it very helpful in determining a change in the main trend. I advise keeping up a quarterly chart on each individual commodity that you trade in.”5

Gann laid down several rules for studying the daily, weekly, and monthly charts and determining their respective positions. He advised watching the action of the daily moves in the first, second, third and fourth stage. If a stock begins an advance, then hes- itates and begins a sideways or lateral movement and goes through resistance levels on the upside, he advised watching how it acts when it hesitates and stops the second, third and fourth times. When it reaches the third or fourth move up, he advised watching for a change in trend, as this represents the culmination period of the move. The same rule applies to the first, second and third moves on the weekly and monthly charts. It also applies to the major as well as the minor swings. According to Gann, when a market begins declining or an indi- vidual stock starts down, it usually makes two, three and four movements before it reaches final bottom.

According to Gann, when a market begins declining or an individual stock starts down, it usually makes two, three and four movements before it reaches final bottom. If the trend is going to reverse, it will only make the first and second decline and then turn up again. But after a prolonged decline and a fourth move down, Gann advised watching for a bottom to form and a change in trend.

If the trend is going to reverse, it will only make the first and second decline and then turn up again. But, after a prolonged decline and a fourth move down, Gann advised watching for a bottom to form and a change in trend.

Figure 4-1: Note the clearly-defined three-section

decline in the above stock chart for Anglogold, from November 1999 through January 2001.