A W. D. Gann Master Time Factor Application

Neil A. Costa

Ken Gerber outlined how Mr. Gann's 'Master Time Factor' cycles can be used to give a powerful, high probability indication of what a market is likely to do in the future in The New W. D. Gann Technical Review article titled 'Master Forecasting Cycles'. Of course, what Ken did was the first step in producing an accurate, specific forecast.

Ken used the Chicago Board of Trade Soybean market to illustrate this powerful forecasting concept. He could have chosen any liquid, freely traded market including stock indices and individual stocks.

To construct these forecasts, all that is needed is a data file going back long enough to cover all cycles to be examined. If you are going to use a 30-year cycle, for example, you will need at least 30 years of accurate data. 30 years of data is not available for some markets which have only been trading for a relatively short time, such as the Mini Eurodollar, Dow Jones Futures and so on.

History Repeats

The basis of Mr. Gann’s forecasts was the fact that history repeats. In his ‘novel’ Tunnel Thru the Air, he states:

My calculations are based on the cycle theory and on mathematical sequences. History repeats itself. That is what I have always contended, - that in order to know and predict the future of anything you only have to look up what has happened in the past and get a correct base or starting point. My authority for stating that the future is but a repetition of the past is found in the Bible.

Read Eccl. 1:9:

“The thing that hath been, it is that which shall be; and that which is done, is that which shall be done: and there is no new thing under the sun.”

Again

“That which has been is now and that which is to be hath already been.”

This makes it plain that everything works according to past cycles, and that history repeats itself in the lives of men, nations and the stock market.

(Gann, W. D., The Tunnel Thru The Air, Lambert-Gann Publishing Company, Pomeroy, 1927, pages 75 and 76.)

Mr. Gann emphasized the importance of the 10-year cycle, and multiples of 10 years:

The 10-year cycle continues to repeat over and over, but the greatest advances and declines occur at the end of the 20-year and 30-year cycles, and again at the end of the 50-year and 60-year cycles, which are stronger than the others. (Number 3 Master Forecasting Method, ‘Forecasting’, November 1935, page 6 and 7.)

And:

For the 1929 Forecast, I compared 1919 – 10 years back, 1909 – 20 years back, 1899 – 30 years back, and 1869 – 60 years back, the Great Cycle…

(Number 3 Master Forecasting Method, ‘Forecasting’, November 1935, page 8.)

What he is saying is that sometimes one market will track a previous cycle very closely; usually a cycle which he considered to be an important cycle.

We will now examine an example of this. We will use the Dow Jones Industrial Average, assume it is March 2000, and assume that we wish to see if the year 2000 is tracking a previous cycle.

To find a year that could indicate what to expect in the year 2000, we would look at the years 1990 (10-year cycle); 1980 (20-year cycle); 1970 (30-year cycle); 1960 (40-year cycle) and so on. After doing this, we find that during the year 2000, the DJIA tracked the 40-year cycle (1960).

The grey line in the chart below, shows the DJIA for the year 2000, and the red line shows the DJIA for the year 1960:

Note how for much of the year 2000, the Dow tracked the 40-year cycle, one of Mr. Gann’s more important cycles. This is not to say that every move was identical to every move 40 years previously. What I am saying is that many of the major swings occurred at the same time of the year as they did 40-years earlier. Remember, we are just looking at turning points here, and whether they were tops and bottoms. Ignore the magnitude of the moves between the tops and the bottoms.

Trading Implications

The purpose of this exercise was to show you how you can generate a road map of a particular market, for a given year. The next issue of importance is how can this road map be used in trading that market.

This particular use of W. D. Gann’s Master Time Factor allows traders to create a broad road map of what the market may do. Should the market continue to follow the pattern, one can trade in the direction of the confirmed trend, as indicated by the road map. Your precise trading strategy, of course, would depend on whether you were a short-term or longer-term trader.

A longer-term trader could trail a stop under swing bottoms on, say, a two-day swing chart, tightening the stop when a counter-trend move was indicated which was likely to stop the trader out. A shorter-term trader would simply trade the moves in the direction of the confirmed trend, tightening his or her stop when the road map indicated that the end of the move was imminent.

Regardless of your strategy, the use of Mr. Gann’s Master Time Factor can allow you to enter and exit market moves closer to bottoms and tops, and to trade with greater confidence. It should be emphasized that regardless of the strategy chosen, the strict adherence to proven risk management rules is essential.

ACKNOWLEDGEMENT:

The charts reproduced in this article were produced by Market Analyst II software.

DISCLAIMER:

Every effort has been made to ensure that the content and conclusions presented in The New W. D. Gann Technical Review are complete and accurate.

No part of The New W. D. Gann Technical Review contains trading advice - stated or implied, nor is an invitation to trade. The directors and associates of Lambert-Gann Educators, Inc. are NOT licensed trading or investment advisors. Lambert-Gann Educators, Inc. is an organization designed to assist traders and investors to become more knowledgeable and independent.

The giving of advice is therefore contrary to the very objectives of Lambert-Gann Educators, Inc.

Traders requiring trading or investment advice should contact a licensed advisor.
Stockbrokers and futures brokers are licensed advisors.

Neither Lambert-Gann Educators, Inc., nor anyone else involved in the production of The New W. D. Gann Technical Review, will be liable for any liability, loss or damage directly or indirectly caused, or believed to be caused, by The New W. D. Gann Technical Review.

Traders, to be successful, must take full responsibility for their own actions.

With respect to trading results, past performance is not necessarily an indication of future performance.

By maintaining your subscription to The New W. D. Gann Technical Review, you acknowledge that you understand and accept the contents of this disclaimer.

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