Binary Options Strategy: Combining Trends, Levels, and Momentum With Gann Fans

Originally developed by W.D. Gann, the Gann fan (also referred to as Gann angles) is a very popular tool used by traders to analyze and understand an asset’s direction over time. Just like an old-fashioned Chinese fan, when overlaid on the price-action of chart, Gann fans help to determine where key levels are and how strong or weak a trend is over a measured period of time.

a Gann line is a diagonal linear ray that is set to measure a specified amount of a change in price versus a specified change in time

Not to be confused with trend lines despite giving vital information about trends, a Gann line is a diagonal linear ray that is set to measure a specified amount of a change in price versus a specified change in time. By using these levels, investors are better able to determine the strength of the trend and when prices are expected to hit certain levels.

Key Levels

Gann lines area commonly employed technical to discover where potential support and resistance levels lie based on the three main Gann angles defined as 1x2, 1x1, and 2x1from the tops or bottoms during specified time periods. The first and most important line is 1x1 or the 45.00° line (or angle). This line basically is used to represent a 1 point change over 1 measured period of time, usually one day as this was traditionally applied to stocks.

For the 2x1 line (63.75°), it represents a 2 point change over 1 period of time while the 1x2 line (26.25°) indicates a 1 point move over 2 periods of time. There are additional popular lines that are used to assemble the fan depending on the strategy up to 8x1 (82.50°) and 1x8 (7.50°).

Setting Up the Fan

The idea is that fans define past, present, and future price action through angles

Fans are typically established at highs or lows in the price action after the onset of a reversal or a change in trend. The idea is that it defines the past, present, and future price action through the use of angles, thus measuring how prices and trends are evolving over time and the strength of directional movements.

Additionally, when both upward and downward fans are combined at levels that define highs and lows over a time period in a process known as “squaring,” it helps to understand potential times when asset prices may shift. However, this is a more complicated strategy that is used for longer-term charts.

The Strategy

When applying this indicator to a trading strategy, the Gann fan can be especially useful for defining potential entry and exit points. However, the first task is to understand just how bearish or bullish an asset’s momentum is. Gann lines that are trending upwards are typically used to denote support whereas

Once one Gann line is broken, the next line becomes the relevant level for price trend

Gann lines that are trending lower represent potential resistance levels for the asset. Typically the strategy is then to establish bullish positions at the support levels defined by Gann lines whereas bearish positions would be initiated at resistance levels designated by the downward diagonal Gann lines.

Additionally, price action in a downward facing fan that rises above the 1x1 line would be viewed as bullish whereas an upward facing fan with prices falling below the 1x1 line would be viewed as a bearish development.

Once one Gann line is broken, the next line higher or lower becomes the relevant level for prices to trend towards. Just like support and resistance levels, once a level is broken support turns into resistance and resistance to support, with the level break seeing the price action move either higher or lower to the next relevant level.

Notes

Price scale and timing can vary widely based on the Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term of the underlying asset being traded. Therefore the time scale that a trader using the Gann fan applies to stocks may not have the same characteristics as those used in commodities or currencies, meaning the indicator’s inputs should be fine-tuned for each asset class it is applied to.

Idan is the VP trading for anyoption.com. He is a seasoned professional with years of experience trading and has a vast knowledge of the financial markets. An expert in the binary options hedging field - Idan provides insights, guidance and coordination in business planning, Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term and technology strategies. He holds a BA in Economics Management and is now busy finishing his MBA in Finance.