|
After the minor swing bottom is broken, a trader should
wait for a new intermediate or major swing bottom to form before
entering any more long positions, the use of Gann lines on a chart can
help in making safer trades. Many traders don't like to use them so
its a personal preference. In Gann trend indicators on a trading
chart, a downtrend occurs when price breaks a swing bottom.
If price moves downward in a defined uptrend but does not
break a swing bottom, it is called a correction and the trader has no
need to exit their long. A break of a swing bottom would constitute an
exit signal. The rules would be the same for a downtrend that is
remaining the same on your time frames. Once a major downtrend has
been established for the time frame you are trading in, you could look
to short intermediate or minor swing tops until they are broken.
Stock traders using Gann Theory for their analysis on their charts. A
major bottom would be a low price on a bar or candle that is lower
than previous lows but is immediately followed by a high that is
higher than the previous three bars or candle highs. The major top is
a high that is higher than previous price action followed immediately
by a low that is lower than the previous three bars or candles.
Those of you who have watched their charts trade know that
they like to identify patterns in order to trade with a higher
probability of success. The theory is that if you can recognize the
pattern early enough and enter before the other traders, you can
profit from the predictable actions of the traders and investors as
they perpetuate the pattern shown. You must be in the trade early and
sell early as well. This does involve skill and paying attention to
your charts. Some stock traders favorite patterns and how they
properly trade it.
So what should be the entire strategy if you choose to add an
Gann into your trading plan. You need to define your clear supply and
demand zones and determine the dominant trend of the time frame you
are trading. Wait for the price action to enter the zone in the
direction you want to trade and pull the trigger when you get the
divergence you want.
While there isn't an obvious divergence at every turning point in the
market, waiting for the clear indications will help you be more
selective in your trades and avoid picking tops and bottoms. Remember
to place your stop losses and take profits as per your trading plan.
|
