GANN MASTER FOREX

Trading Course
Section 1
• In the previous two course materials we tried to make a
short recap and approach a few pragmatic elements
that are extremely important in the life of a trader. In
this week’s material we will go back to studying the
classic patterns. The first price model which we will
study now is the broadening triangle. The large triangle
is a figure rarely met in comparison to the symmetric
triangle. In the case of this figure, the sides of the
triangle distance themselves from one another.
• Usually, the evolution continues in an opposite direction
of the previous one. The respective figure does not
have well expressed transaction rules. In the two slides
below you can notice a graphic representation of this
price model but also a concrete example recorded in
the market on the stocks of those from General Motors
in the monthly chart.
• The following figure we will study is called a Wedge
and it represents a triangle developed on the direction
of the previous development (the trend direction). For
this figure the rules of the symmetric triangle are
characteristics.
• HOW DOES THE FIGURE FORM?
• Let’s analyze a Wedge type figure that forms in an
ascending trend but evidently we must understand that
the same rules apply in the case of a Wedge model that
forms in a descending trend. In order to understand
better, we will follow this graphic model in the example
inserted in the slide below.
• Upon the growth of the price, near the important level.
The market begins to lose some of its momentum. Up
until the touch of the resistance level, the double
correction of the market (Wave 1). After that there will
be the new setting of the movement and the buyers
touch a new maximum level (Wave 2). This provokes
the sellers, there takes place the market direction
represented by Wave 3, which isn’t capable to touch
the previous base level, because the buyers become
stronger. Wave 4 touches a new maximum level.
• The situation repeats itself as we can see in the
example above in Wave 5. Finally, at the same time
with Wave 6, the market penetrates the strong level,
which confirms the figure.
• The Characteristics of the Model:
• -The presence of five waves that form the triangle.
• -For building the triangle there are at least four points
necessary;
• -If the length of the Wedge is equal to L, in order to
recognize the penetration, it must be around 2/3 L or
1/3 L from the tip of the Wedge. As you can see in our
example above. It is necessary that the penetration be
after 1/2 L , but only up to ¾ L.
• The penetration outside this area may be considered a
false signal.
• We open the transactions in the penetration point, placing
the stop loss lower (upon buying) or respectively above
(upon selling), than the penetration level. The profit target is
determined by the height of the Wedge base, traced from
the penetration point.
• -Another way of setting the target is given by the distance
between the penetrated line and the last base, traced from
the penetration point. In our example above this is the
distance between the penetrated line and the base, that is
formed by the waves 5 and 6. This target is closer and the
possibility of touching it is bigger.
• -After penetrating the level, the reversal of the price is
possible, after the market begins the movement in the
followed direction.
• -In the beginning, the transaction volumes lower,
confirming the figure forming, after which, in the
immediate vicinity of the level that will be penetrated
and upon the evolution after the level passing, the
volumes grow considerably.
• The wedge model may be analyzed not only as a
continuation figure, but also as one of trend direction
change. If it is formed at the end of a strong trend, then
it is living proof of the trend slowing down. The rules for
the Wedge continuation and Wedge trend change
models are identical.
• In the above example we give you a concrete example
of the appearance of a Wedge type model at the end of
an ascending trend. These patterns showed up on the
chart of the USD/CAD currency pair and it formed in
the 4.01.2007 – 9.02.2007 time frame. We can easily
notice that in the example presented by us, the Wedge
model is one of finalizing the trend and of changing it at
the same time.
• Figures that form during the correction
• Flag
• Is a figure we often meet, that proved it’s
resourcefulness and it is formed during a correction.
Formed during the chart, it shows the basic direction of
the evolution of the trend and the moment of the ending
of the correction. Its name is given by its shape (if we
look at the previous trend), which reminds us of a Flag
with it’s stick attached.
• Characteristics of the figure
• The Flag is a correction figure, that is why it is always
oriented in the inverted direction of the previous trend.
• -The edges of the flag are parallel or slightly closed
together and they represent the support and resistance
of the figure.
• -The flag is a figure that is limited in time.
• -It must be smaller reported to the appropriate trend
which it corrects.
• -The presence of a strong level is necessary that
solicits the correction.
• -The figure is formed after four points.
• -The opening of the position is done upon the
penetration of the Flag in the direction of the trend.
• The stop loss order is set lower (upon buying) or higher
(upon selling) of the penetrated level.
• -The target of the profit in the case of this figure is its
width, traced from the point of the penetrated point.
• -At the beginning of the correction, the transaction
volumes lower, confirming the forming of the figure,
after which, near the level which will be penetrated and
upon the evolution after the passing of the level, the
volumes grow considerably.
• In the slide above we give you an example of a Flag
formation which we have found in the daily chart of the
same currency pair USD/CAD. The model was formed
also in the year 2007 in the 406-2007 time frame-
28.06.2007. This is a variety of the figure, more often
met and formed after a long, profound evolution in a
certain direction.
• Pennant
• In the slide above you can see a Pennant type model
and you most certainly can notice that it is extremely
similar to the Wedge model presented earlier. An
important difference. Is that upon the penetration of the
Pennant, the prices evolve in the same direction as
upon the forming of the figure ( the trend direction ).
• A change of the trend direction does not occur.
• CHARACTERISTICS OF THE FIGURE
• -The Pennant is a correction figure, and that is why it is
always oriented to the inverse trend direction.
• The edges of the Pennant are the support and
resistance lines.
• The figure is formed on a short time frame.
• It is necessary that the figure is smaller compared to
the trend which it corrects.
• The presence of a strong level is necessary that boosts
the correction.
• The figure is formed of four points.
• The opening of the transaction is made upon
penetrating the Pennant in the direction of the trend.
• The Stop loss order is given lower (upon buying) or
higher (upon selling) of the penetrated level.
• The target of the profit is equal to the length of the base
traced from the penetrated level.
• At the beginning of the correction, the volume of the
transactions lower, confirming the forming of the figure,
after which, in the approach of the level that will be
penetrated, and upon the evolution of the passing of
the level, the volumes grow considerably.
• In some cases they may be interpreted as direction of
the evolution of the price inversion.
• In the above slide we give you a Pennant type model,
seen in the daily chart of the EUR/USD that has formed
in the 27.08.2007 – 05.09.2007 time frame. We can
easily notice that this Pennant formed as a correction
model in an ascending trend and you may also notice
how you may calculate the target of the price using the
length of the base from the penetration point.
• The variable figures
• The variable figures may be price models, which may be of
trend inverting but also of continuing it. In the below slide
we give you the model known as a rectangle model. The
model reflects a consolidation period.
• This is a figure with double characteristics. Depending on
the evolution of the price and the forming period, we may
point out the ulterior roles of the inversion or continuation
figures.
• THE CHARACTERISTICS OF THE FIGURE
• The presence of two strong levels.
• The position is opened in the penetration point.
• The target of the profit is given by the height of the
figure.
• The stop loss is placed lower or higher of the
penetrated level.
• In the above slide, we can see a rectangle type model
that formed on the USD/CHF four hour chart, in the
7.08.2007 – 10.08.2007 time frame. In the case given
in the example, the ascending evolution continues after
the forming of the figure also. The rectangle may be
interpreted as another figure also; for example, if we go
back to the triple height level, then we will notice that
such a figure may be interpreted as a square.
• In this case, the rectangle represents a signal of trend
direction inversion.
• As we can see in our example above, the rectangle that
formed is one of trend continuation.
• DIAMOND
• In the slide above, we give you the graphic image of a
diamond type model that is formed as a growing
triangle followed by a symmetric triangle.
• The rules of this model are based on that of the
symmetric triangle.
• THE CHARACTERISTICS OF THE FIGURE
• The forming of the ascending triangle.
• -The presence of four points for the forming of the
diamond.
• The moment of opening the transaction, the target of
the profit, and the stop loss level are determined by the
rules of the symmetric triangle.
• The trade volume will lower initially – upon the forming
of the growing triangle, and then it grows step by step.
After that it will lower, confirming the symmetric
triangle. After the penetration of the figure, the volumes
grow considerably. In the market, the Diamond model is
met very rarely, and is a incertitude model. It may be of
both inversion of the trend and also of continuation. In
the slide below we present to you the chart EUR/USD,
where in the year 2006 we met such a model that was
one of trend direction change.
• The MSVD figure
• After many surveillance years and the using of the price
figures in the transactions of the financial markets, there
have been several problems regarding their influence upon
the market, the efficiency, the probability etc.
• There are several questions, as for example the possibility
maybe of determining the exact opening and closing of the
positions, the targets of the forecast profit and other
elements given by the methodology that was proposed?
• In time, traders notice certain laws, behaviour patterns,
that, if they stand the test of time, can be used as new price
models.
• Let’s now talk of a new element in the already existing
theory, of which fewer characteristics have been known so
far.
• As we have mentioned before, the importance of the price
figures are given by the fact that they are given concrete
targets that the markets touch after the penetration of the
appropriate levels.
• These targets may be seen as market profit fixation
points. As we have presented in a previous course
material, we have seen that the market does not touch
these targets 100 % accurate. Why does this occur?
What changes? What makes the market, in some cases
to not touch its target, and in other cases, to overpass
it?
• The answer to these questions is hidden in the complex
combination of the market conditions and the time in
which the movement develops. Will there be a
difference between touching the target in a day or in
several days for that matter? In a week? Or more?
• YES.
• Depending on the time after the penetration of a certain
model, the target will also move.
• This movement may be positive, the target may further
itself from the level, the potential profit grows.
• Negative- the target may get closer to the level, the
profit potential lowers.
• In order to determine the changing of the target
depending on the time and market and time conditions,
we create a rule with the name of MSVD.
• In short, it may be formed in the following ways:
• The changing of the profit target depending on the
previous time of the penetration of the target, is
determined by the angle of the line (of support or
resistance), that confirmed the figure, that was
penetrated.
• In the above slide we illustrate what we were
presenting in words ( an ideal model of the head and
shoulders pattern ). In this way everything corresponds
to the characteristics that have already been analyzed.
What impression will there be left from the illustration?
• The target of the profit is the distance between the
head and the neckline from the penetrated line and the
A line. From our example we may notice that the target
is not touched 100%. Just approximately 85% (point B).
• This means that trading based upon this figure, using the
Take Profit order and following the rules of the figure
exactly, the target will not be touched. Then there results
that we have wrongly interpreted the models and we are the
witnesses of a fake signal?
• This is a NEGATIVE thing.
• The figure is absolutely correct, only that the target of the
profit has moved slightly in time. In other words, in the
model presented, the target is in point A, if the movement
takes place very swiftly.
• The longer the beginning of the decline is postponed, the
more the target will change. Depending on the speed of
development of the evolution, the target may be changed
from point A to point B. The MSVD model reflects a new
level of theory regarding the price figures, drawing attention
towards the so called “dynamic targets”. The model is easy
to use. In order to determine the target of the price we must
trace the target line that is inclined or an MSVD line.
• This line is parallel with the penetration line which
penetration confirms the figure and is traced at an equal
distance to the classic target, obtained from the figure.
• Concretely, in our above example , in order to build the
MSVD line we must take the following steps:
• 1.Measuring the height of the head we obtain the H
distance.
• 2.We fix the H distance in a penetration point, determine
point A which represents the end of the H interval.
• 3. We trace the line which passes through point A in a
parallel fashion to the neckline. Thus, the dynamic line of
the price line is created.
• MSVD is built identically, when the base line, the
confirming figure has a negative inclination. At the base
line negative inclination, the MSVD line will also have a
negative inclination. In order to use the MSVD figure,
we must formulate a few necessary conditions:
• - The MSVD lines must be parallel to the lines of which
penetration confirms the figure.
• The MSVD line represents a price level only in its
safety area. This area is the distance from the – target
area which is equal to the interval from point one up to
the penetration point.
• This distance is traced from the point of the initial target
(from the A point up to point 2). In the case in which the
dynamic target point is nowhere near these two limits, it
cannot be considered a safe one.
• The market may not reach the safety level for two reasons:
• 1. The penetration was fake and the evolution of the market
is developed in an opposite direction.
• 2. The second cause relies on the fact that, the market
consollidates for a long time after the penetration, getting
ready for a strong evolution towards the target. With a high
probability, we may state that movement of the market will
pass the target based on MSVD and that of the classic
theory.
• The MSVD line does not necessarily have to be under
an angle bigger than 30 degrees ( or smaller than 330
degrees ). This is determined related to the type of
model that we choose. Setting a figure of the price
excludes the presence of a large angle. In the case in
which this angle is bigger than 30 degrees (smaller
than 330 degrees) we must only select the targets
depending on the classic models or point A of our
examples.
• The MSVD figure is valid for all figures for which it may be
applied. But for example, it may not be used for the double
top and rectangle models because they have horizontal
main lines.
• -In the case of some figures, the price line will have a
positive slope, or negative slope.
• For example, in the head and shoulders examined models,
the neckline may be both positive and negative, which
results in the MSVD line having a simmilar slope.
• In other price models (for example the triangle),
depending on the direction of the movement, this line
will have a fixed slope. In the ascending evolution it will
have a negative slope, and in the descending one it will
have a positive one.