Use the Gann wobble chart to find the top and bottom of the chart

One of the core principles of technical analysis is that there is a trend in price fluctuations. The goal of a technical analyst is to identify trends in the early stages of trend development. Experienced traders would agree with this, but it is often difficult for beginners to identify trends on price charts. The reason, of course, lies in a lack of experience and practice. Once a turning point in the market is identified, a trend can be judged. The technique of finding tops and bottoms on a chart is not clear to everyone. For beginners, the process can become a process of trial and error.

This article will explore this topic briefly.

William D. Gann (W.D. Gann)

Gann is considered by some to be one of the greatest stock and commodity traders of all time. He correctly predicted that the price of wheat would reach $1.20 by September 1909, Black Friday in 1929, and the Great Depression of the 1930s, to name just a few examples of his accurate predictions.

Gann loved mathematics, so he spent many years studying it in England, India and Egypt. He believed that markets followed mathematical laws and that there was a relationship between price and time. He later formulated his theory as a four-way diagram of price and time. He went on to develop many complex concepts and theories, of which the Gann wobble diagram remains perhaps one of the easiest to understand.

Gann pendulum diagram

The main purpose of using Gann charts was to eliminate the "noise" in price charts, which was not only unnecessary but also made it difficult to interpret price movements. Gann developed an objective, mechanical procedure - excluding emotional and subjective factors - to identify swings on price charts.

The four basic elements of Gann's pendulum diagram

Rising day - higher highs, higher lows

Fall day - lower highs, lower lows

Internal Day - lower highs, higher lows

Outside Day - higher highs, lower lows

Construction of Gann Pendulum Diagram

The construction rules of Gann's pendulum diagram are as follows:

Identify the turning point on the price chart.

A series of rising days is followed by a falling day, marking the end of the uptrend and the beginning of a new trend in the opposite direction: a downtrend

A series of down days is followed by an up day, marking the end of the downtrend and the beginning of a new trend in the opposite direction: an uptrend

Ignore internal days because they are neutral.

Outside days are seen as "wait and see".

Rising Day -- Green.

Turning Point

Descending Day -- Red

Interior Day - Black

Outside Day - Blue

time factor

The next step is to remove the time factor by removing all the lines/bars that are not turning points. After all, what we are really interested in is where the market is going.

Turning Point

Trading with swing charts

Many people find Gann wobble charts easier to use because the opening and stop loss levels are clearly identified on the price chart. Potential profit levels can be found using different theories. You can use Fibonacci price extensions (e.g. 1.618, 2.618, and 4.236) and adjust Fibonacci levels according to your trading conditions.

In addition, you can choose to continue trading, tracking stops on subsequent fluctuations until the reverse price movement is confirmed. This is a common practice in financial marekt trading. Traders should exercise caution, as while trailing stops may protect potential profits, they may also exit a profitable trade prematurely.

On the other hand, expect the price to move in the opposite direction, maintain a fixed stop loss, and gain potential profits, which may lead to more profits, but may also turn a profitable trade into a losing one. The choice is yours!