Geometric Coincidence or the Ghost of Gann?

Posted by Max Andronichuk / / /

W.D Gann was one of the most successful, and most complicated, traders that I have come across in the past year since I started looking into technical analysis. For those of you who have not heard of him, his main approach to markets was based on the idea that they moved in and displayed certain geometric, mathematical patterns. His trading record would suggest that he was not far from the “Holy Grail” of technical analysis, unfortunately he did not write down his trading secrets in an obviously revealing way, so we do not know his EXACT trading technique.


Now whilst I am no expert on Gann (although I am interested in reading his texts) I’m sure that he would have viewed Fibonacci patterns with some interest. At first I thought that Elliott Wave and Fibonacci retracements/projections were a bit of a “voodoo art”, but then I started using them more and more in my observations and now it’s my guiding theory when it comes to markets.


Here is a chart of recent FTSE activity.





The recent 3 week rally has been very sharp, very sudden and largely uninterrupted. Now although there is no RSI indicator on this chart, I suspect that it would be SCREAMING overbought. Looking at the circled recent few days of trading, it seems the market has been stunned by inactivity. We can see an “inside day” followed by a doji-ish bar, with a long upper shadow, this is pretty bearish. I suspect that this could be the top of a wave 1 of ( C ), what this means is that I expect a corrective fall before the rally continues up.


This is where the Fibonacci retracements come in. I have added the Fib. Levels from this wave low to its potential top, these are the levels which may provide areas of support for the retracement. Notice how the 50% retracement (Gann’s most important level) lies on the 4400 level. I think it important to comment that however strange it may be, the market does often take note of these “psychological” levels. Take a look at what has happened on the previous 3 occasions when the market reached 4600... it consolidated and retreated. So because of this cluster of retracement level and psychological level, my suspected target for a market retracement now is 4400, lets see what happens.


Now for the interesting part... where will it go from there? Well, this is the inspiration for the post title. There are two Fibonacci projections which you can see, these are projections of wave ( a ) and the potential wave 1 of ( c ), there is also a black dashed line running across the chart, this is the 50% retracement level of the entire market crash since late 2007 (when it began) to its lowest point. What are the chances that all 3 levels are within 100 points of each other, and that one of the Fib projection levels, is almost EXACTLY in line with the 50% retracement? I would be very surprised if the market were go to this cluster area and not show any sign of a reversal or resistance.


So perhaps Gann really had a point, perhaps mathematical and geometric patterns are more important in markets than most people would ever consider. Certainly the idea of psychology and geometry playing important roles in market movements would not be welcomed by most academics and “efficient market theorists”, but let’s see what happens from here.


Short Trend: Down? (corrective)
Medium Trend: Up
Long Trend: Down