It is a well-known fact among serious traders and technical analysts that W.D. Gann used financial astrology or the study of natural cycles to predict turns in the market and to execute precise entries and exits.
Natural Cycles and Financial Astrology
It is a well-known fact among serious traders and technical analysts that W.D. Gann used financial astrology or the study of natural cycles to predict turns in the market and to execute precise entries and exits.
To better understand how to use his techniques, one must have a grasp of the key terms and phrases used by the astrologer as well as how these items can be applied to financial markets. Fortunately many books and software programs are available today on the subject of financial astrology to make the task of learning and applying this trading technique much easier than when Gann first started using it.
This article is not designed to teach financial astrology but rather to inform the reader of a few of the techniques Gann applied to stock and commodity markets. It is also written to remove some of the stigma related to astrology which includes references to “voodoo economics” and “financial witchcraft”. In order to make the reader comfortable with topic let’s start out by identifying astrology as simply the study of natural cycles and their influences on man and events.
A natural cycle is a cycle that cannot be altered by man. For example, although fourteen- day cycle in a market can be discovered through analysis of historical price action, a naturally occurring fourteen-day cycle is the moon cycle. While one cycle may be changed or altered as more data becomes available, the moon cycle cannot change. Since the moon cycle follows a natural law, its position can be predicted well into the future. To Gann the division of time by the natural cycles of the moon, the sun, and the planets was very important to the movements of the markets. For example, his thirty-day cycle was based on the sun cycle, and the twelve-year and eighty-four-year cycles were based on Jupiter and Uranus cycles, respectively.
The study of natural cycles, their origins, and their influences on the markets led Gann to develop a trading system based on financial astrology. Financial astrology is the study of how planets and their phenomena affect commodity and stock markets. The financial astrologer believes planetary influences are the cause of bull and bear markets.
The fundamental principle behind financial astrology is that the planets’ orbits, rulerships, groups of planets, and the sun and moon have an effect on the minds and actions of people and events, and in particular, these planetary effects affect the cycles and prices of stocks and commodities. That in sum is the meaning of financial astrology. While you may wish to reserve judgment on this matter, the fact remains that Gann was expert at financial astrology, that he was totally committed to it, and that he used it as a means of improving his trades.
Gann was often quoted as saying that there was nothing mysterious about his methods of prediction. He also claimed, in effect, that if he had the appropriate data, he could use geometry and algebra along with the theory of cycles to predict when a certain event would happen. This is ultimately the language of the astrologer. Also note that in much of his work Gann used the term cycle as did the Greeks (to the Greeks the word “cycle” meant circle, again an astrological term). Astrologers use math, geometry, and algebra to find the locations of the planets and the moon, study past effects when the planets were in certain positions relative to each other, the sun, and the earth, and then use their calculations to make their forecasts.
For years Gann made charts predicting the future of prices a year in advance (his annual forecast), and financial astrology was apparently the method he used in making these forecasts. Included in them was the exact price, the time of the day, as well as the day and month.
He was careful not to publish anything whatsoever on this use of financial astrology because he knew such a revelation would receive bad press, and the effect this would have on his status and his brokerage and advisory business. He did, however, publish material privately to his clients who were willing to pay a steep price for such information. These so-called “Gann financial astrology papers” have made their way to the mainstream via the internet and are the subject of much study today. It is important to note that Gann did not discover financial astrology; he merely applied what he had been taught by many famous astrologers of his time. Many of his techniques are pretty common to trained astrologers with the exception of converting the longitude of planets to price which I will give him credit for until proved otherwise.
Gann certainly broke new ground in financial astrology. Most astrologers are capable of using the longitude readings or time periods only. However, he was able to convert longitude to price, and was thereby able to generate a methodology for support and resistance levels. This was a new advance in financial astrology, and helps to explain how he could allegedly make calls within one-eighth of a point on stocks for highs and lows. You can begin to see how he was able to make long-range predictions, as well as minute-to-minute forecasts.
Trained astrologers can also find hidden meanings in some of this writings particularly in his book “The Tunnel through the Air.” This book can be regarded as an astrological handbook if you have been trained to identify keywords and the significance of key dates. Besides being peppered with financial astrological references, this book also makes references to Bible cycles and the prediction of world events.
Finally, the study of, but not necessarily the belief in, astrology played a major role in the development of Gann’s forecasting technique. Rather than try to explain how he used astrology, the following is an excerpt from a rare item that explains in great detail how he converted astrological analysis into price and time analysis and a trading system. Rather than write in his normal veiled language, in which astrological references were replaced with market terms, Gann used terms unique to astrology.
In the first paragraph Gann explains how to convert degrees to the planets to price to find support and resistance
…67 (cents), add 90 gives 157 or 7 degrees Virgo. Add 135 gives 202 or 22 degrees Libra. Add 120 gives 127 or 7 degrees Leo. Add 180 gives 247 or 7 degrees Sagittarius. Add 225 gives 292 or 22 degrees Capricorn. Add 240 gives 307 or 7 degrees Aquarius. Add 270 gives 337 or 7 degrees Gemini. Add 271 ½ gives 438 ¼. High on May Beans was 436 ¾. After that high the next extreme low was 201 ½. Note that 67 plus 125 gives 202, and that one-half of 405 is 202 ½, and 180 plus 22 ½ is 202 ½, which are the mathematical reasons why May Soybeans made bottom at 201 ½.
All of the above price levels can be measured in Time Periods of days, weeks and months, and when the time periods come out at these prices, it is important for a change in trend, especially if confirmed by the geometrical angles from highs and lows.
Here, Gann created support and resistance levels using the longitude of the position of the sun. In the next excerpt, Gann used the longitude of the major planets to create support and resistance levels.
Active Angles and Degrees
By live or active angles is meant Prices and Time Periods where the Longitude of the major planets are or where the squares, triangles, oppositions are to these planets.
The averages of the six major planets Heliocentric and Geocentric are the most powerful points for Time and Price Resistance. Also the Geocentric and Heliocentric average of the five major planets with Mars left out, is of great importance and should be watched.
You should also calculate the averages of eight planets which move around the Sun as this is the first most important odd square. The square of “1” is one, and “1” is the Sun. 8 added to “1” gives 9, the square of 3 and completes the first important odd square, which is important for Time and Price.
Examples of live, active angles: At the present writing, January 18, 1954, Saturn Geocentric is 8 to 9 degrees Scorpio. Add the square or 90 degrees gives 8 to 9 degrees Aquarius and equals the price 308-309, for May Beans.
The planet Jupiter is at 21 degrees Gemini, which is 81 degrees in longitude from “0”, the square of 9. Subtract 135 degrees from Jupiter gives 306 or 6 degrees Aquarius. This is why Soy Beans have met resistance so many times between 306 and 311 ¼. The Price Resistance levels come out strong around these degrees and prices and the Geometrical angles come out on daily, weekly, and monthly, but the Power of Saturn and Jupiter aspects, working out Time to these Resistance Levels, is what halts the advance in Soy Beans.
Example: December 2, 1953, May Soybeans high 311 ¼. This equaled 18 degrees 45’ in Pisces, close square or 90 degrees of Jupiter, 135 degrees to Saturn and 180 degrees of the averages, and 120 degrees of Uranus.
300 price equals 30 degrees Virgo. 302 equals 30 degrees Libra. 304 equals 30 degrees Scorpio. On January 18, 1954, the planet Saturn Geocentric is 8 degrees Scorpio, and 15 degrees Scorpio gives a price of 303, therefore when May Beans decline 302, they will be below the body or longitude of Saturn and will indicate lower. At the same time, using the Earth’s revolution of 365 ¼ days to move around the Sun, a price of 308 ½ is 90 degrees or square to Saturn. As long as the price is below 308 ½ it is within the square and in position to go lower. But by the 24th revolution, when the price breaks below 304, it is in the bear sign of Scorpio, a fixed sign and will indicate lower prices.
Study and analyze all options of all commodities in the same way as we have analyzed May Beans. Remember, when these Resistance Points are met you must give the market time to show that it is making tops or bottoms and getting ready to make a change in trend. Do not guess, wait until you get a definite indication to buy or sell against these resistance levels and place a stop loss order. Having before you all the information outlined above, you would certainly have gone short of May Soy Beans on December 17 at 296 because the price was down to the 45 degree angle from 44 on the Monthly high and low chart.
To a trained astrologer and experienced trader, these excerpts reveal an important link between pattern, price, and time. In addition, they also show that although using financial astrology can be a useful trading tool, a trader should not abandon conventional charting techniques, as both aspects have to be used together. For example, knowledge of astrology is necessary to interpret and convert the degrees of the planets, but knowledge of technical analysis techniques is still needed to build charts, interpret tops and bottoms, find support and resistance, and place stop orders. All of this information may seem complicated to follow, but remember the overwhelming theme in each excerpt is pattern, price, and time. In addition, traders should note that using this technique does not guarantee success nor does it eliminate the risk of trading stocks or commodities.
My experience has taught me that in order to be a successful trader; one must learn to balance his market analysis with references to pattern, price and time. Some traders get lazy and rely too much on price because it is something easily obtainable from any basic charting program. Many traders use easy to come by price indicators such as moving averages and pivot points to help them determine from “where” a market may take off. Time analysis is a little bit harder to grasp because work has to be done to determine significant turning points. In my analysis I specialize in giving the client the “where” and the “when” a turn in the market is likely to take place. Knowing a little about the “when” and combining it with the “where” can make a significant difference to a trader’s performance. When in doubt about a price level, always know a time factor that can help you determine if the market is at a good entry point.
Like all trading techniques or tools, the use of financial astrology as a timing tool requires deep study and practice but can become a valuable trading tool if used in balance with the other two important factors of pattern and price. The three factors of pattern, price and time are very significant and should be used together whenever possible.
