How to Use Gann Fan Trading Strategy
The Gann Fan trading strategy is a complex approach based on comprehensive usage of support and resistance. Instead of using conventional horizontal support and resistance levels, it applies diagonal lines from specific angles. The main challenge is that traders are supposed to use mathematical calculations to identify the price range and the timeframe for the market.
On the other hand, the Gann Fan strategy provides enough flexibility, as it can be used across multiple markets when trading different types of assets. As the Gann theory says, human behavior is the driving force that moves financial markets. In other words, the market has a cyclical nature letting traders make the most of historical data when making predictions.
The Idea of the Gann Fan Trading Strategy
The idea of the strategy is to use angles formed by diagonal support and resistance levels. The theory supposes financial markets moving geometrically. When you spot a geometric shape on a chart, it is likely to appear in the Gann Fan angle as well.
To apply the strategy, you will need the Gann Fan indicator. On the one hand, it can take some time to understand how it works. On the other hand, it is the only technical indicator you will need, which makes the technique quite simple to implement after learning some basics. The main thing that makes this indicator unique is its ability to draw diagonal support and resistance lines letting them form angles. It is very colorful making it easy to recognize the indicator.
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How to Use Gann Fan
The Gann Fan theory introduces 9 different angles. Also known as the 1/1-line, f 45-degree angle is the most important one to consider. When plotted on the chart, these angles provide a clear vision of how the price is going to move. However, to gain success, the technique must apply equal price intervals and timeframes.
In other words, if the 1/1 line rises, it will imply a 45-degree angle, which may sound weird at first. However, when you learn how to draw Gann Fan angles, the concept will become clearer.
The Difference between Gann Fan and Trendlines
When trading the Gann fan strategy, you will have to work with a series of lines plotted at a specific angle. Oppositely, a trendline can only connect a swing low directly with a swing low (or high with a high) without forming an angle. Besides, a trendline depicts recent price action and hardly helps to make predictions for the future.
In other words, a trendline connects one bottom with another, while a Gann fan forms a diagonal line that keeps moving at a specific speed rate. This is actually what makes it a better alternative to trendlines. Traders have a chance to perform analysis and predictions of where the price can move next within a particular time frame.
What’s more, the Gann Fan strategy allows us to foresee where the market will be placed on a specific date. Knowing the angle makes it possible for traders to identify the market strength as well as the trend direction.
It would be wrong to say trendlines do not bring any prediction value to the user. On the other hand, in the constantly-moving market, they do not seem to be reliable enough to make accurate predictions and take actions based on those forecasts.
Gann Fan Trading Strategy Limitations
First of all, not all charting platforms come with an integrated Gann Fan. If you want to use this concept, make sure a platform has a built-in tool to set a 45-degree angle on a chart. Another challenge is that we cannot scale each and every asset at 1:1. The scale may vary depending on a traded instrument.
Additionally, the price can disregard Gann Fan. It happens, when the price keeps going up even while standing below the 1/1 line. At this stage, it may not even mark crucial support and resistance levels. Considering this fact, using the strategy on multiple charts at the same time can make no sense. To make the most of the approach, you should use it in conjunction with other technical indicators as well as extra tools to perform price action forecasts and in-depth analysis.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.