[The following is a reprint of an article in ‘The W. D. Gann Technical Review’, written by Billy Jones in May, 1982.]

Trading Zones

Many techniques W. D. Gann used in his trading and in his technical analysis have gone unnoticed since his death. In studying his old charts and papers some of these methods have been uncovered.

It is not known why Mr. Gann did not mention these unless he figured they needed more time to test and prove their worthiness. Regardless of the reason, I find that some of these techniques have validity in trading and in market analysis.

One such technique is the "Zone System". This is a simple method and certainly worth the time it takes to implement it in your trading.

As you can see by the chart example, which is May Wheat, the Zone System makes use of a 45-degree [1 x 1] angle drawn up from various points early in the life of the move. These zone lines will divide the up-coming move into three important sections or zones that, when established, will not change.

In the beginning other lines will also be used, but after some time has passed, some of the lines will be omitted and you will select the major divisions that will remain the same throughout the market’s move. Experience will come with trial and error.

As with any system, the Zone System works best in either a bull or bear market rather than a dull sideways market in consolidation. Once the move is under way and the trend has been established, the major zone divisions become final. An ideal buy zone established early in the move will not change as the market advances. The same goes for a sell zone.

This means that should you buy May Wheat (see chart example) at 472 and this proves to be a good purchase because of the advance in the price. You will have similar results when you buy at 492 or the next move into the buy zone. Purchases should be made as the market moves down in the buy zone. You should sell as the market moves up in the sell zone.

If you are a short-term trader, you should buy in the buy zone, and hold until price reaches the sell zone. At this time you sell and go short.

If you are a long-tem trader, you should buy each time the market enters the buy zone, adding to your position until the move is over.

Various techniques can be used for entry and exit.

It is assumed that you will be using a one to one charting system. In this case, a 45-degree angle determines the zones. If a different unit of price and time is used, an angle other than the 45-degree angle may be needed to establish the correct zones.

The Zone System can be used in conjunction with Mr. Gann’s Mechanical Method and Trend Line Indicator. This method can be used either short-term or longer-term as indicated by Mr. Gann’s weekly charts.

It should be remembered that this is just another tool to help you analyze the market. It should be used in conjunction with other good techniques to enable you to trade successfully.