What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


How to Calculate Gann

Original post by Wilhelm Schnotz of Demand Media

Gann numbers, an investing tool developed by W.D. Gann, measure the slope of a stock's price as an indicator of support and resistance points in stock pricing, when price and time are plotted on a one-to-one graph. While Gann's methods are questioned because of their reliance on past data as a prediction of a stock's price, many of his followers believe that determining a point when an investment's slope changes from one Gann number to another can be key to determining pivotal points in any stock's price and its future performance.

Step 1

Using a pencil and a ruler, draw an x-axis and y-axis on the graph paper, with its origin -- coordinates 0,0 -- near the lower right-hand corner of the graph.

Step 2

Determine your scale of measurement for the x- and y-axis on your graph. Traditionally, the x-axis represents price, and the y-axis represents time. Increments on both axes must be the same for each line on the graph. Depending upon the stock's volatility, prices may be listed at $1, $2, $10 or another increment. The time measurement may be indexed daily or weekly.

Step 3

Plot the stock's price per each time increment using historical data. Connect the data points to create a rough line graph.

Step 4

Draw a line using a ruler that connects the most recent stock prices on the graph, developing a straight line from the current stock price.

Step 5

Locate the locus at which the ruler-drawn line crosses an x and y coordinate exactly. Label this point A. Locate the closest locus the ruler-drawn line crosses from point A. Label this point B.

Step 6

Count the number of squares along the x-axis from point A to point B, and count the number of squares along the y-axis between the two points. Express this number as a ratio (x:y), such as 2:1 or 1:1. Simplify the ratio so that the y-axis value is 1. The other number is the stock's Gann number.

                   

Things Needed

  • Graph paper
  • Historical stock prices
  • Pencil
  • Ruler

Resources

References

About the Author

Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.

Advertisement