Gann Fan

Gann Fan is a technical indicator used to assess price movements for financial instruments. Traders use it to find support and resistance levels in a technical chart through a series of angles and lines.

The lines and angles appear diagonally, and their value is calculated mathematically, which depends on the time and price ranges in the market for that financial instrument. It is similar to Fibonacci but can identify price movements and also breakouts. 

Gann Fan is also known as Gann grid or Gann Angle because they are technical indicators that take the appearance of a set of grid lines or angles. The mathematical calculation of the same is complex. Traders plot them in a price chart to get the support and resistance levels as well as breakout points of financial instruments. 

W. D. Gann created this unique tool of Gann fan strategy to estimate and forecast trends of financial instruments, which traders can trade to earn profits. This tool helps calculate the possible buy and sell points and understand the price targets where they can book their profits. 

In this tool, the most essential angle is the 45-degree angle. However, other angles also help in the analysis. Through this process, traders can comfortably understand the support and resistance levels. 

Gann fans are considered better than trend lines because the former’s speed is uniform, which is a good indicator for estimating the direction and momentum of a price trend. However, not all charting tools can use this indicator accurately. It is also not a tool that traders can use alone to make trade decisions. It should be combined with other technical indicators. 

As already pointed out earlier, the Gann Fan chart projects the 45-degree angle, which is the 1:1 line, the most important one, but other angles like the 2:1, 3:1, 4:1, and 8:1 are also there, along with 1:8. 1:4, 1:3, etc. When the prices go above the 1:1 level, it is assumed to be a bullish trend, and below 1:1 is considered a bearish trend. 

This Gann fan strategy is based on clarity regarding the degree of slopes. When a diagonal line is drawn across a square or a grid, from bottom left to top right, the angle formed is 45 degrees. If to get 45 degrees, two such grid boxes are needed, then it is 2:1, which is an angle that is flatter than 45 degrees. But if, within the same period, the price goes up by two boxes, it is 1:2, which is steeper than the 45-degree angle. 

Based on the above concept of Gann fan trading and observations, the traders can draw any number of lines on the chart and observe the price movements. These additional lines at different angles are called Gann Angles. Here, the trader should look for any intersection of candlestick price action with these angles to identify the proper support and resistance. 

Here is an example from TradingView that will help in understanding the concept. In the chart of Nifty 50 given below, the various angles of the indicator appear using different colors, which makes it easy to detect and understand. 

The angles of Gann fan trading are the indicators that form according to the tool setting in the chart, and these angles will be used to assess the bullish or bearish price movement. However, there is also a Gann oscillator whose calculation is based on the difference between two moving average values. This oscillator moves at levels that serve the purpose of support and resistance and points out the buy and sell levels. 

Source

This Gann fan indicator will not provide suitable trade decisions below a one-hour time frame. However, the trader should wait till the prices create a breakout above the 1:1 line. But just a breakout is not enough. The trader has to get a confirmation regarding the trade. So they should now wait for the Gann angle to break the 2:1 level. This will confirm the price reversal. 

Next comes the implementation of the indicator again, by deleting the previous indicators to prevent cluttering in the chart and again putting the indicator at the new level to track the market swing and decide the entry-level. At this point, the trader also has to determine the stop loss levels so that there is a controlled risk. The stop loss will be placed at the most recent level of swing low, depending on the point from where the second set of Gann Angles is drawn. The trader should book profits once the price closes just below the 1:1 line. This is the first display of weakness and price fall in the market. 

The above are the trading strategies for buy trade. However, the process is also used for sell strategies, where the steps will be reversed. Thus, unlike the traditional method of support and resistance, Gann fans will identify swing trends more efficiently. 

Here are a few examples of how to understand the concept of the Gann fan indicator. 

Example #1 

Jack, who is a day trader, tries to spot an entry point in the market using the Gann Fan indicator. He draws the angles in the chart platform and locates the fact that the prices are trending above the 1:1 line r the 45-degree angle. This is proof that the market is showing an upward movement potential very soon. Very soon, he spots a breakout at the 2:1 level and checks the other indicators, such as the MACD and the RSI, which also indicate a strong up-move. Thus, he enters the market at this stage with a stop loss at a comfortable level that is within his risk-taking ability. 

Example #2

It has been observed that Gann Fan has been gaining a lot of importance in the financial market for the purpose of analyzing the trajectory or trend of assets and their price movement. It has become trendy among investors not only to detect price action and strength of price direction but also to determine the shifts or highs and lows at which prices change. However, the indicator may vary based on the chart platform used and also the market volatility. 

The concept has several uses, as given below:

• It is an ideal indicator for estimating price trends or direction along with the strength or momentum of the same. 
• It is also a good indicator for understanding support and resistance levels. It depends on the direction of price movement and its relation to the angle. 
• If the investor is experienced enough with this indicator, then they can quickly fix the price target, which is the level at which the trader can book their profits. 
• It is equally helpful in time analysis along with price analysis. It predicts, using the angles, when there can be a possible reversal by studying the future price cycles. 
• The concept is used in combination with other indicators to assess different chart patterns like wedges, triangles, etc, to make confirmed trade decisions. 
• This is also ideal for risk management because traders take trades by putting stop loss to control the loss levels in case the market shows any adverse movements. 

Some benefits of the concept are given below:

• It identifies various beneficial levels like support and resistance, change in trends, and price strength while it is moving in a particular direction. 
• It can be comfortably used in a trading platform, and it is not a very complex process to understand and use.
• Depending on the charting platform, it may use different colors for different angles, which gives it a visually appealing look and facilitates line and angle identification. 
• The traders can use the breakout levels that place trade for entry and also decide on the stop loss. This prevents massive risk in case of adverse market movement. 

Some noteworthy limitations of the concept are given below.

• Some charting platforms may not have the proper setting for identifying the 45-degree angle. This may change the analysis.
• Some platforms may even have different settings for different assets, which makes the matter very confusing.
• Gann fan lines may not always work as expected because sometimes the prices may continue to stay within the levels, or they may rise even though they are below the 1:1 level. This confuses the trader because the critical support or resistance areas may not be displayed correctly. 
• Sometimes, the indicator may not function properly, misguiding the trader while taking trades. 
• It is not a standalone indicator and has to be used in conjunction with other well-known indicators to get maximum benefit. 

Both the above indicators are methods of technical analysis using mathematical sequence, but there are some differences between them, as follows:

• The Gann fan lines are based on the relationship between time and price, but the latter is based on the Fibonacci series or ratios.
• The former consists of angles that are formed using trendline series, but the latter has no such angle formation. They are lines that suggest possible levels of support or resistance. 
• W.D. Gann invented the former, and the latter is associated with Indian mathematician Virahanka. 

Thus, the above are some differences between the two types of technical indicators.