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Gann's
basic rules for trading swing charts are ...
The
trend is down when there are lower swing tops after a swing bottom
has been broken. The trend is up when there are higher swing bottoms
after a swing top has been broken. To explain this further, observe
SWING CHART OF GIO INSURANCE, above, covering the period 960201 to
980501.
Swing Top B is lower than Swing Top A. Similarly,
Swing Top C is lower than Swing Top B, and
Swing Top D is lower than Swing Top C.
The major trend through this period is therefore down.
The market then goes above swing top D. Gann now says can that the
trend is up, and Gann defines one buy point just above swing top D
in his courses.
Assuming
you had bought at a price just above swing top D, Gann said that as
the market advanced and made new higher swing bottoms, (swing bottoms
2, 3 and 4), you would move your sell stop up under the latest swing
bottom. You would continue to do this as the market advanced until
finally you would be stopped out.
Looking
at how the rules work on the Swiss Franc Weekly chart. This is first
month continuation chart from 1975 to 1995 ...
If you go through this chart and simulate buying and selling at the
trend change points occording to Gann's rules, you will find that
there are few false trend change points in a 20 year period. This
is a swing chart produced by the HotTrader software. The consistency
on this chart is quite remarkable and shows that the long term trend
can definitely be established with swing charts using a single parameter
setting.
Further,
Gann defined a pyramiding technique, which is adding more positions
in the direction of the trend, as the market continues in the direction
of the trend. The method states that, if the trend is going up, you
would buy your first position at the break of a swing high, putting
your stop under the most recent swing low, then add another position
at the break of the next swing high, with your stop on the whole position
under the next most recent swing low, and continue doing this as the
market advanced. Finally, the whole position would be stopped out
at the major trend change.
The
foreign exchange markets, which allow you to hold positions literally
for months or years without having to roll over futures contracts,
would allow this strategy to actually be implemented! Here is the
continuation of this chart covering the period 920717 to 980716 ...
Terry
Ashman is a programmer, trader and researcher.
He can be contacted on (07) 3832 4733
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