PROBLEM SOLUTION: ONE DAY AT A TIME
Three of Gann's trades in the 1909 article were day trades. Other forecasted trades did not hit the price point he projected for weeks, sometimes months. In one of the Wheat trades, the actual price did not hit the targeted price he is alleged to have given until a year later. In the US Steel trade, he gave a top price to reverse at and gave the next low price before the top was even made. In another trade, he supposedly told a man by the name of Gilley that Wheat, while trading under 1.10 around noon, must hit 1.20 by the end of the day.
In that last trade, both 1.10 (minor resistance) and 1.20 show up with his method. I see many reasons why 1.20 would be more powerful. I would not have said, as he did, price must get to 1.20 by the close of the session even though there is an algorithm that connects the date to 1.20. If Gann did say what he is purported to have said about Wheat touching 1.20 that day, it must have been because of that algorithm which tied price to the date. The date a stock makes a high or low price is often connected by the model. Many other trades in the 1909 article also connect the date and the price of the final high or low. I used this algorithm in the example at the end of this article.
A reporter for the Wall Street Journal at the time, talking about the surprise move in Wheat when it rocketed to 1.20, said someone placed an order at 1.11 and from there, prices just rose quickly. That discussion, in 1909, is consistent with how prices move away from penetrated sensitive points. 1.10 was a sensitive point. A sensitive point is like a water table. Once the water table is penetrated, the water will keep rising. Likewise, price wants to move to the next sensitive point once one sensitive point is surpassed, but not necessarily the same day like what happened in the famous September Wheat trade. The Water Table Effect is a key factor in trading the Gann method.
I can easily duplicate Gann’s trades on the day (ON DATE) they occurred with pinpoint accuracy, but I would not have been able to forecast the non-day trades in the way they are presented in the 1909 article. F.B. Thatcher said he knew the truth, but the truth is buried with him. I do know that when using this method, there is more than one price outcome, like in the Wheat trade mentioned above. I do know that on the Square of Nine there are many support and resistance points that are possible, and picking the final reversal point in advance is a guessing game.
The method covered in the written manual and the workshops consists of using the algorithm discovered in the 1909 article one day at a time, with some hint of the next minor target "as long as the trend continues". As a trader, one takes partial profits and holds some position with stops to deal with the unknown date of trend termination.
An example of how this method works on an equity is shown below. This is a chart of GM in late 2004-early 2005. A low was made on December 6 at 37.92. A high point occurred on January 3 at 40.8. In order for the drop from the top to be an extended decline, cycles had to be pushing down hard in early January. Otherwise, a smaller reaction or minor correction would have occurred. Without having precise and consistently accurate cycle forecasts, one doesn’t know if any drop will be a small or big decline in GM. I say this having published cycle forecasts for eleven years on a month to month basis. It’s not easy.
A few days after it is obvious that GM set a low on December 6, and assuming the trend continuing upward, one can get an indication of a profit taking point or short position entry based on the Gann method.
My version of the Gann method of the Square of Nine tells one nothing about the trend factors. What the Gann method does predict is a three-fold indication of prices meeting resistance between 40.4 and 40.9. (By the way, none of Gann’s eight non-day trade forecasts mentions when in time, the final turn will occur.) The first two indications originate from the price low of 37.92 and the date of December 6 respectively. The third factor is that on January 3 price touches the resistance prices and an algorithm can be used to see if the date of January 3 is tied to the price in the resistance range. It is and therefore a three-way indication of resistance is given on that day. I call this last indication the ON DATE algorithm. Gann used it on a day trade when he said that Union Pacific would go to 168 ¾ but not an 1/8 higher without a good break.
The way I see the method that Gann used in all his price forecasts is as a SUPPORT and RESISTANCE calculator and only ONE DAY AT A TIME. No fancy forecasts are made very far into the future. Gann’s forecasts in the 1909 article lay the foundation for how one should use the Square of Nine and it is very, very different from the standard way that it is taught. The value of the Square of Nine is strictly limited to price targets, profit taking, and trade entry support and resistance points close to the prevailing price. It is an edge with tight stops that the trader needs, but it isn't the holy grail of trading as portrayed in the 1909 article-that is the catch-22.
