# How to Make Money Trading by W D Gann

## Important Divisions

Div. Days Weeks Months Years

1 20.736 2.962 682 56.8

1/2 10.368 1.481 341 28.4

1/4 5.184 .740 170 14.2

1/8 2.592 .370 85 7.10

1/16 1.296 .185 43 3.55

1/32 .648 .093 21 1.77

1/64 .324 .046 11 0.89

Weekly and monthly time cycles are the most important cycles.

* In the short term, watch 3.5 day i.e. the 3rd/4th day from important top/bottom for change in minor trend. It may become a beginning of a major trend.

* Reactions will often last for two or three weeks. Therefore watch 14th day and 21st day along with the 7th day from important top/bottom. Out of these 14th is the most significant and 21 next. (Note that 14 is very close to 13 and 21 is Fibonacci number itself).

* 1/16 of the year is 23 days. Watch for this too.

* Square of 7, 49 is very important for change in trend.

* Watch for a change after 42 days (2×21), but the change may not occur until 45th-46th day. (I have noticed that on many charts of A group stocks 42 day or near about fixed time cycles are important. These numbers, very close to each other, gives some flexibility in analysis, Fibonacci numbers plus minus a few days).

On yearly charts, 90 year, 60 year, 30 year, 20 year, 10 year, 7 years and their multiples and 5 year cycles are important to watch especially the simultaneous end/beginning of these cycles.

1/3 years from any top/bottom when combines with 1/2 or 1/4 years from any other top/bottom becomes very important. 1/2 of the year is the very important – same as the half of the range/high. Anniversaries, however are the most important. 39 weeks and 17 weeks and 35 weeks are also important.

The cycles derived from prices are based on High, Low and Range (i.e. difference between high and low). The most powerful is the square of the range. The absolute number at high, low or that of range is assumed to be forming a time cycle with so many days, weeks or months. In other words, a high at 60 means a time cycle of 60 days/weeks/months. All the division as mentioned earlier will be applicable to this cycle.

Thus a cycle derived from prices will have two axis – Vertical price axis and horizontal time axis. Significant changes can be expected at important divisions of price or time. But the most significant changes should be expected at the angles made by combining the two. These angles are made on the square of the price. Here square does not mean price raised to the power of two. This is the geometrical square where the length of one side is equal to the price. The square is drawn down from high and up from low.

The square of range can be made down from top or up from low. In a square of high at say 60, drawn on daily graph will have its corners at the following four points:

1) at the price (at 60)

2) at the price (at 60) 60 days away in future i.e. 60 on price axis 60 days
to the right on the time axis from the day on which the price has reached 60.

3) at zero on price axis just below the high and

4) at zero 60 days to the right of point 3.

If the price moves down one point each day the price will reach to the point 4, i.e. 0 on the 60th day. This action is called squaring the price. The angle of fall will be 45% on the square. This is also referred to as 1×1 angle i.e. fall of one unit in one day. In same fashion we can draw angle 2×1 i.e. fall of two units in one day and so on. The most significant angles are 2×1, 1×1 and 1×2. These angles are drawn from point 1, 3 and the mid-point between 1 and 3 and the mid-point on 2 and 4.

Crossing over of the angles drawn on the square are considered probable turning points. Angles from 50% mark should always be seen.

When the price breaks below 45% angle line it signifies a weak position and indicates a decline to the next angle. If it again crosses the 45% angle it ihas likely regained its strength. At the crossover of these angles distance from the base i.e. the day of high/ low is important. Larger the distance, more powerful the trend is likely to be.

1/2 is the most important level. This is knwn as the gravity center. If the price falls below this level and bounces back to touch this level again, on the first such occasion it is good setup to short sell. If price comes to 50% of high and 50% in time it can be a high probability buy, which may result in 3 months fast move-up on a weekly chart.

The third time against any support or resistance zone is a danger time.

The 1st, 2nd, 3rd, 4th, 7th, 9th and 12th squares are the significant squares of lows but
all should be monitored. (i.e. the price levels at 2,3,4,7,9,12 times the low).

* The first year of a decade is the year to look for a bear campaign to end and bull market to begin.

* The second year, is a year of a minor bull market or a bear market rally.

* Year three is the start of bear year, but the rally from the second year may run into March or April, or if the second year is a decline, the decline from the second year may run down and make bottom in February or March of the third year.

* Year four is to be a bear year, but it ends the bear cycles and lays the foundation for a bull year.

* Year five is the bull year, the year of ascension.

* Year six is a bull year in which the bull campaign which started in the fourth year usually ends in the fall.

* Year seven is a bear year (but note that 1927 was at the end of a 60 year cycle and that there was no decline).

* Year eight is a bull year. Prices start advancing in the seventh year and reach the 90th month of the decade in the eighth year. This is very positive and a good advance usually takes place in this year.

* The ninth year of the decade is the strongest of all bull years for bull markets. The final bull campaign culminates in this year after an extreme advance, and the prices start to decline. The bear market usually starts in September to November.

* Year ten is a bear year. A rally often runs until March or April, then a severe decline may take place until November or December, when a new cycle begins and another rally starts. (Look for such cycles in the Indian indices).

In a strong rally the lows of the reaction end above the top of the previous rally. The duration of the quick counter trend moves is three to four days on the indices and three to five days on the stocks. A movement exceeding the fourth day indicates the trend may go to a consolidation area or reversal with higher tops and higher bottoms vs the previous day or vice versa.

Bar reversals at cycle ends are extremely important points for a trend reversal. A stock or commodity can correct more than four days and then continue that trend. This next correction (counter-trend) in time will likely be seven to ten days.

* Smallest complete cycle is 5 years.

* Minor cycles are 3 years and 6 years.

*Always watch for change in the 59th month.

* Bull or bear campaigns seldom run more than 3-3.5 years up or down without a move of 3-6 months of one year in the opposite direction, except at the end of a Major cycle, like 1869 and 1929.

* Many market moves culminate in the 23rd month.

The purpose in trading is not to make pick exact highs and lows. The purpose is to make money! Always have a plan and trade your plan. The opportunities are numerous trading the markets and you will miss many moves. But not to worry about missing opportunities because another will be along shortly. Trade from a plan and do not react to the markets. Knowledge, discipline, courage and hard work are the requirements of skillful trading.