Pattern, Price and Time - Using Gann Theory
Pattern, Price and Time - Using Gann Theory
Praise for
I have known James Hyerczyk since 1991. I have always valued W. D. Ganns methods. Reading Jims book, Pattern, Price & Time, Second Edition is a good way to
get started in learning the concepts of Ganns methodology. I highly recommend
this book.
Michael Popilchak, Director of Sales & Marketing,
The Sweet Futures Division of Rosenthal Collins Group LLC
Hunting out good opportunities involves good tracking. Jim has taken his vast
experience with Ganns proven technical analysis, to show the savvy investor the foot
prints in the snow to find those successful trades. As the Chief Investment Officer of
LaSalle St. Securities, I have found over the last thirty-five years that good technical
analysis is invaluable.
Jay C. Carstensen, Chief Investment Officer,
LaSalle St. Securities, LLC
Second Edition
Jims breadth of knowledge spans futures, Forex, stocks, Gann, charting, price patterns,
and the list goes on and on. He is a valued contributor to the TraderPlanet.com
community and this book further demonstrates his unwavering commitment to
educating traders to help them become more successful.
HYERCZYK
Wiley Trading
Pattern,
Price & Time
SECOND EDITION
Using
Gann Theory
in
Technical
Analysis
JAMES A. HYERCZYK
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Pattern, Price
& Time
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Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the
United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services
for our customers professional and personal knowledge and understanding.
The Wiley Trading series features books by traders who have survived the
markets ever changing temperament and have prosperedsome by reinventing systems,
others by getting back to basics. Whether a novice trader, professional, or somewhere inbetween, these books will provide the advice and strategies needed to prosper today and
well into the future.
For a list of available titles, please visit our Web site at www.WileyFinance.com.
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Pattern, Price
& Time
Using Gann Theory in Technical Analysis
Second Edition
JAMES A. HYERCZYK
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Contents
Preface
Acknowledgments
ix
xiii
CHAPTER 1
CHAPTER 2
CHAPTER 3
17
23
28
28
30
32
33
42
Chart Basics
45
Gann-Format Charts
Proper Chart Construction
Charting Programs
Types of Charts
Summary
45
50
56
57
66
69
70
74
80
CHAPTER 4
CHAPTER 5
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vi
CHAPTER 6
CHAPTER 7
CHAPTER 8
CHAPTER 9
CONTENTS
84
87
88
89
90
91
91
95
99
102
104
119
122
125
125
127
128
129
133
140
141
141
143
143
146
149
149
150
153
154
155
156
167
195
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Contents
CHAPTER 10
197
CHAPTER 11
Time
203
Natural Cycles
Anniversary Dates
Seasonality
Swing Charts
Square Charts
Summary
203
210
216
221
225
231
233
233
238
243
245
248
257
Index
259
CHAPTER 12
251
251
253
255
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Preface
m sure youve all heard the expression, The more things change, the more they remain the same. This is true when it comes to technical analysis. Although there have
been advances in technology since the first edition of Pattern, Price & Time was published in 1998, the markets are still creating patterns, making percentage retracements,
or hitting cycle lows just as they were in 1998 and even before then.
With each new software program there seems to be another way to analyze and
trade the markets with some new oscillator or indicator in an attempt by the trader to
gain an edge. Unfortunately, this theme of smoothing out valuable information like the
Open, High, Low, and Close has, in my opinion, created more difficult trading conditions.
Today, despite all the new technical analysis tools and equations, the definitions of an
uptrendhigher tops and higher bottomsand of a downtrendlower tops and lower
bottomshave remained unchanged for decades. Today, while traders remain fascinated
with smoothing out data in an effort to get the edge, the art of analysis of the simple basic
data has been cast aside.
As I wrote in the first edition of Pattern, Price & Time, my intention is not to write
about W. D. Gann, but instead to write a book about what I consider to be the major
themes of Ganns work: pattern, price, and time. In addition, I wanted to write a book that
can be used by the analyst and trader who can apply Ganns basic rules to the markets
without having to learn astrology or buy Gann wheels and plastic overlays. I wanted to
write a book that would introduce a trader to techniques that would allow a trader to take
basic data that is available every day and through study, experimentation, and practice
create sound market analysis.
My experience in the futures business has shown me that too often traders become hooked on either pattern, price, or time in their analysis. They tend to weight
their analysis one way without an equal balance. The most common mistakes are systems built around time to enter and price to exit, or price to enter and time to exit. In
addition, traders who use pattern often enter or exit at poor prices or with poor timing. These observations provided further evidence that a combination of all three methods is necessary for success in the marketplace. It is on this premise that I have based
my book.
ix
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PREFACE
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xi
for example, left no record on how to trade stock indices, Treasury bonds, or Forex
markets. Although at times limited by page size in this book, I believe pattern, price, and
time analysis is presented in a detailed but clear manner. I hope that you find the ideas
in the book as useful as I have.
James A. Hyerczyk
Palos Park, Illinois
September 2008
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Acknowledgments
would like to thank my wife, Mary Colleen, and my daughters Amy, Kelly, and Erin
for giving me the time and the space to pursue my passion for technical analysis. Each
of you has a special place in my heart, and I love you all very much.
xiii
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CHAPTER 1
espite the proliferation of trading analysis programs claiming to have new indicators and new ways to analyze the markets, Ive come to the conclusion that
there really is not anything new under the sun and that all of these discoveries
can be placed into the categories of pattern, price, and time.
Ever since the early days of trading up until today, traders have been trying to create
ways to manipulate data in an effort to find an edge over everyone else. Todays sophisticated programs have the ability to smooth data and create sophisticated formulas to
make the markets basic data appear to show anything the programs want to find. Some
programs create moving averages, while others try to break down the markets into oscillators that move between 0 and 100. All of these new ways to look at data may be fine
for some, provided that they understand how these numbers are created, and the programs create rules on how to use them, but I find working with the original Open, High,
Low, and Close data to be most beneficial. In addition, while I acknowledge that using
computer-generated oscillators or indicators may speed up the process of analyzing a
market, I have found that all of these smoothing tools will eventually collapse to or agree
with my simple analysis of the markets using the Open, High, Low, and Close.
This book, although it is concerned with the technical analysis approaches to trading
Forex, futures, and equities, should not be considered the definitive answer to making
tremendous amounts of money in trading. Instead it should be used as a guideline to give
the trader an edge as to what is actually taking place in the marketplace. My application
of pattern, price, and time analysis allows me to see and understand what is happening
in the markets. It does not hide anything in complicated formulas or computer number
crunching. Although this is a personal preference, I feel that the analyst who understands
how pattern, price, and time work independently and in unison with each other creates
an edge to trading the markets that computerized analysis cannot.
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Throughout the book the reader will see the phrase study and experiment. This is
because the reader is encouraged to learn as much as he can about the movements of
the markets, the characteristics of these movements, and how to make informed trading
decisions once this knowledge is applied.
The basic premise behind pattern, price, or time analysis is that these three factors
have not changed in the 100 or more years since Charles Dow unleashed his Dow Theory
to the world. In fact, if you want to go back even further, take a look at Candlestick
analysis which is said to have its roots back to the 1700s. This very popular analysis tool
is a study of pattern with basic Open, High, Low, and Close the major elements. Despite
the proliferation of todays new trading analysis tools and trading systems as a result of
the personal computer and trading software, trading tools used today can nevertheless
still be categorized as pattern, price, or time.
Todays pattern studies include stochastic indicators, relative strength indicators,
overbought/oversold indicators, moving average crossovers, and Candlesticks. Price is
categorized as moving averages, daily pivots, and retracements. Finally, time is used today in the form of seasonality, cycles, and time of day studies.
Hang around a trading room long enough, and you will often hear, I had the right
price, but was a little early or Ive got a cycle low due at 11:00, I just dont know where
the market will stop. These are the types of problems that can be created by using only
price, or only time, or only a pattern. In this book I want to show the trader that there
is a way to bring the factors of pattern, price, and time together in an effort to improve
trading results.
When studying the history of technical analysis I came across several valid methodologies to analyze and trade the markets, but I found that these methods were weighted
toward only one of the three main components of pattern, price, and time. This created problems for me because although at times one of these factors had control of
the market, I found I did not have control of the trade. This frustration caused me to
study the disciplines of Elliott and Dow, but I found personal issues with each. One
relied too much on the forecast and prevented me from changing my mind while in a
trade. My ego became too connected to the forecast, and I often failed to make necessary adjustments to the trade. The other analysis technique took too long to develop.
I also tried to work with point and figure charts, and although I understood how to
use the formations, I still felt time was necessary to help me become a better trader.
When Candlestick analysis became readily available on the computer, I tried to use
it, but found some of the patterns occurred too frequently and at random places on
the chart, so I sensed that price and time would be necessary to improve this sort of
analysis.
All of this study and experimentation of these other analysis disciplines led me back
to the pattern, price, and time analysis of W. D. Gann. I chose Gann Theory as my primary
source of analysis because throughout his works he wrote about the balance of price and
time. This became very important to me because my work needed balance. I knew from
my analysis and trading that I could not just rely on pattern, or price, or time independently. I knew that although I could use his techniques independently, I could improve
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1x4
1x2
[14198.10]
[14021.95]
14,000
1x1
13,000
[12795.93]
12447.93
[12517.94]
[11670.19]
12,000
[11939.61]
[11350.00]
[11035.10]
[10984.46]
[10753.63]
[10673.10]
10697.75
11,000
[10683.32]
2x1
9871.67 10,000
[10156.46]
[9708.40]
54.64]
[9043.30]
[9106.50]
8947.58
9,000
4x1
8,000
[8062.30]
[7416.60]
[7197.40]
01
02
03
04
05
06
07
08
09
Created with TradeStation
my analysis and trading by finding a balance between his two or three key elements of
pattern, price, and time (Figure 1.1).
In summary, the purpose of this book is to inform the trader of the analysis tools
that are available just using the Open, High, Low, and Close. The other purpose is to
teach the trader to categorize his trading tools into pattern, price, and time techniques
and to apply combinations of the three to improve his analysis and trading. Finally, in an
effort to jump-start the readers study and experimentation of pattern, price, and time, I
have chosen to highlight the analysis and trading techniques of W. D. Gann because he
was one of the first to speak of the balance of price and time.
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CHAPTER 2
f not the first technical market analyst, W. D. Gann was certainly among the more successful. Creating and publicizing a new approach to analyzing markets, Gann claimed
that he had set a worlds record in leverage and accuracy more than once, that he had
developed trading strategies for speculators, and that he could predict market moves to
exact price levels.
William Delbert Gann was born on a cotton ranch on June 6, 1878, in Lufkin, Texas.
He displayed a strong aptitude in mathematics during his early years, completed a high
school education, and started trading in 1902 at the age of 24. By his own admission,
Ganns early trading was based on hope, fear and greed, all of which he later realized
were not compatible with a successful trading strategy.
After losing significant sums of money, Gann began to observe that markets followed
mathematical laws and certain time cycles. He was particularly interested in the connection between price and time, a relationship he referred to as the square of price and
time. He began studying this interaction diligently, even traveling to England, India, and
Egypt to research mathematical theory and historical prices.
In developing his theories, Gann was undoubtedly one of the most industrious technical analysts. He made thousands of charts displaying daily, weekly, monthly, and yearly
prices for a wide variety of stocks and commodities. He was an avid researcher, occasionally charting a price back hundreds of years. At a time when most market analysis
was strictly fundamental, Ganns revolutionary theories relied on natural laws of mathematics, time cycles, and his unshakable conviction that past market activity predicted
future activity.
Gann moved to New York City in 1908. He opened brokerage offices at 18 Broadway
and began testing his theories and techniques in the market. Within a year it was clear to
others that Ganns success was based on more than just luck. A December 1909 article
in The Ticker and Investment Digest explained that . . . Mr. Gann has developed an
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entirely new idea as to the principles governing stock market movements (reprinted in
the W. D. Gann Commodities Course [Pomeroy, WA: Lambert-Gann Publishing, 178]).
In this article, Gann asserted that most traders enter the market without any knowledge or study, and that most eventually lose money. He explained that he noticed a cyclic
recurrence in the rise and fall of stocks and commodities, and decided to study and apply natural laws to trading strategy. Gann indicated that months of studying at the British
Museum in London revealed what he called the Law of Vibration. This law determines
the exact points to which a stock would rise or fall, and predicts the effect well before
the Street is aware of either the cause or the effect. Beyond this vague explanation, Gann
was reticent about his strategies and unwilling to explain his theories in any detail.
Although past success is not an indication of future results, Ganns trading was extremely successful, at least to a point. An analysis of his trading record over 25 market
days revealed that Gann made 286 trades, 264 of which were profitable. His success rate
of 92.31 percent turned an initial investment of $450 into $37,000. A colleague of Ganns
said, I once saw him take $130.00 and in less than one month run it up to over $12,000.00.
He can compound money faster than any man I ever met. It is not surprising that the
press concluded . . . such performances as these. . . . are unparalleled in the history of
the street (Gann Course, 180). Although Ganns theories were apparently profitable at
times, he was equally subject to the potentially substantial risk of loss that is inherent in
commodities futures trading.
Gann issued annual market predictions of major moves and exact support and resistance levels (Figure 2.1). Newspapers around the country kept track of his predictions
for 1921, 1922, and 1923, substantiating his accuracy. In January 1929, he issued an annual forecast that read:
SeptemberOne of the sharpest declines of the year is indicated. There will be
a loss of confidence by investors and the public will try to get out after it is too
late. . . . A Black Friday is indicated and a panicky decline in stocks with only
small rallies.
Truth of the Stock Tape (reprint Pomeroy, WA: Lambert-Gann
Publishing, 1976, 36).
His facility in analysis and prediction extended to areas other than the market.
He predicted the exact date of the Kaisers abdication, the end of World War I, and
the elections of presidents Wilson and Harding. Gann also predicted the occurrence of
World War II 13 years in advance and described the stealth bomber 61 years before its
invention.
Ganns original reticence about his success later turned into an almost religious
fervor to share his knowledge. He had begun writing during his trading career, starting with Truth of the Stock Tape, written in 1923 (originally published by Financial
Guardian Publishing Co.; reprinted by Lambert-Gann Publishing Co.). This book was
intended to help traders analyze market activity using a standard stock tape. In 1927, he
wrote The Tunnel Thru the Air: Or, Looking Back from 1940 (reprint Pomeroy, WA:
Lambert-Gann Publishing Co., 1976). This seemingly autobiographical novel provides
1919
1920
1921
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62
70
78
86
94
W. D. G A N N
1922
1923
1924
KEY
1925
1926
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insight into Ganns trading theories and his morals. (It also includes his predictions of
World War II and the stealth bomber.) He went on to write books and courses explaining
his new discoveries, including New Stock Trend Indicator, How to Make Profits in
Commodities, and 45 Years in Wall Street (originally published in 1936, 1942, and
1949, respectively; all three books were later reprinted by Lambert-Gann Publishing
Co., 1976). He also created home study courses for stocks and commodities and taught
weekend seminars to explain the use of special price and time calculator tools he had
invented. These materials were considered valuable enough that in 1932 people were
paying $1,500 for his home study commodity course, and $5,000 for his master price and
time calculator seminar.
In the late 1940s Gann published a market letter covering advice on stocks, cotton,
and grain. The letter was produced weekly along with a daily version published three
days a week. The letter was written in a style that combined fundamentals with chart
points. There was no mention of important dates or time cycles, but it included comments such as We expect heavy selling during the next few days and much lower prices
before the end of the week.
I have included two reprints of the letter in this chapter. Because the reprints may
be difficult to read I have typed the letter in full. When I studied these letters I looked for
references to astrology or other timing phenomena but found none. This does not mean
that Gann did not use it in his timing; it may just mean that Gann was a businessman
who wanted to sell a newsletter to earn income. He may have saved his advanced price
and time analysis for clients who had taken personal classes or purchased his expensive
courses (Figure 2.2).
COMMODITY LETTER: April 21, 1947
Wheat
All the Grain markets showed weakness today and from Secretary Andersons
statement today, it was evident that the Government realizes that there are going to be plenty surplus commodities later and that prices will have to come down
and parities lowered. The market will not wait for the Government to do something
to get prices down but will decline and discount future developments.
We are confident that the market has seen final highs and is now starting on the
long down-trend. We expect heavy selling during the next few days and much lower
prices before the end of the week. If you are not already short, sell short without
waiting for rallies.
May WheatIs showing more weakness and breaking 250 could decline quickly to
240238. We favor selling the distant options.
July WheatShort sale at the market. Very little rally indicated before big decline
takes place. Breaking 218 will indicate lower and breaking 215 will be a signal for
very much lower prices.
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10
Sept. WheatShort sale at the market. Breaking 213 will indicate lower and breaking 210 will indicate 205203.
Corn
Sold off Saturday and was weak and lower again today. It is getting into position
for a fast decline as support levels have been broken. If you are short, stay short. If
not, sell at the market.
July CornBreaking 1631/2 indicates 156155.
Sept. CornBreaking 152 could decline quickly to 145144.
Oats
Buyers are withdrawing from the market and offerings are increasing. Todays
high prices are not likely to be exceeded before a decline to much lower levels.
July OatsBreaking 78 indicates 72 or lower.
Sept. OatsBreaking support at 72 will indicate 68 or lower.
Eggs
The market was weak on Saturday with prices recording the greatest decline for
several months. There was very little rally today and the market closed weak. The
buying has been overdone and the market is in a position for a sharp decline. We
advise staying short.
October EggsNot likely to cross 49 cents and breaking 4785 indicates
45504500.
Cotton
The market rallied on Saturday and had a further rally early today and the distant
options sold off about 50 points while the old crop options held up, and closed
strong. We advise short sales of October and December. These options are not likely
to rally to todays highest before going much lower. The weather is improving and
planting is making good progress. Price cutting is going on in the textile industry,
and the old crop options are much too high but might hold up a while longer while
hedge selling depresses the new crop options. We consider this a real opportunity
to go short of October and December.
Oct. CottonBreaking 2940 will indicate lower and breaking 2900 indicates 2800
or lower.
Dec. CottonBreaking 2860 indicates lower and breaking 2800 will be in a very
weak position and could decline fast.
W.D. Gann & Son, Inc.
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11
Gann also published a weekly market letter. In this letter he provided more information on support and resistance for the reader as well as buy/sell recommendations and
stop loss suggestions (Figure 2.3).
COMMODITY LETTER: January 26, 1948
Grain
All grains declined near the close today in anticipation of a bearish Government
report on stocks of grain in trade channels. This report was not foreshadowed
by prior reports from the Southwest to the effect that elevator stocks had about
been cleaned out by Government purchases. It is too early to say for sure, but
if todays action was caused by factors other than the Government report there is
substantial evidence that the end of the long bull market in grains is not far off.
And, if May wheat is unable to close above 2981/2 very shortly, we expect lower
prices for all grains. Corn behaved the best. It was followed by oats and wheat,
which were cleaned out yesterday, in that order.
We recommend short sales of May wheat on rallies with a stop that will reverse
your position it closes above 2981/2 .
May WheatWill meet resistance on rallies at 2961/4 81/2 , 3001/4 2 and 30507.
Watch the market closely at these resistance points for indications of a change in
trend. After such points have been penetrated on the way up, they become support
points on subsequent declines. Move stops up under them after they have been
penetrated as protection against a reversal of trend.
Will meet support on declines at 2931/2 , 2891/2 901/2 and 2861/2 8. Watch the market closely at these support points for indications of a change in trend. After such
points have been penetrated on the way down, they become resistance points on
subsequent rallies. When short, move stops down over them after they have been
penetrated as protection against a reversal of trend.
July WheatWill meet resistance on rallies at 26451/2 , 2671/2 91/2 , and 2724.
Will meet support on declines at 2601/2 2, 2571/2 9, and 2533/4 5. Closing below
2533/4 indicates lower. See May Wheat for comment on use of support and resistance points.
May CornWill meet resistance on rallies at 2689 and 2693/4 713/4 . Will meet
support on declines at 2641/4 5, 2623, 2581/2 60. Closing below 2581/2 indicates lower. See May Wheat for comment on use of support and resistance
points.
July CornWill meet resistance on rallies at 2567 and 2581/2 601/4 . Will
receive support on declines at 2511/2 21/4 and 2481/2 50. Closing below 2481/2
indicates lower. See May Wheat for comment on use of support and resistance
points.