The New W. D. Gann Technical Review

Vol. 3, No. 3	May 27, 2004
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[The following is a reprint of an article in 'The W D Gann Technical Review' written by Billy Jones in July 1985.]

Forecasting market tops and bottoms correctly is one thing, entering and exiting them efficiently is another. There are some simple rules that will help you with entry and exit.

The one most useful indication of a short term or immediate change of trend is the REVERSAL and the KEY REVERSAL. This simple indicator is one of the most powerful and useful of any that I know.

Watch for any move that is in one direction, up or down, that lasts for three or more days. In this case, let us say the move is down. We have three or more days of lower highs and lows and on the next day the market opens, trades lower making a new low, then reverses and trades above the previous day's close. This indicates the trend has changed and denotes a KEY REVERSAL. Naturally, closing at the top of the range on the day of the KEY REVERSAL is bullish.

The KEY REVERSAL on a weekly chart is a much stronger indication that the trend has changed.

In some instances the market doesn't make a new low or high yet it reverses and closes above the previous day's close. This is also a sign the trend has changed, at least for the time being.

A graphic illustration of the REVERSAL and the KEY REVERSAL is below:

Three days (or three weeks in the case of a weekly chart) is the usual minimum to precede a reversal and by the same token, more than three time periods is stronger yet. It stands to reason that the more days or time periods up or down denotes a stronger rally or reaction to follow.

Look at the CATTLE CHARTS for instance. On May 6th you had a KEY REVERSAL that came after several days down. The rally that followed lasted for two weeks.

If you follow all of the reversals, whether KEY or plain, you will be with the trend. 90% of the reversal indications of the type I've mentioned are followed by a change in trend.

Trading with the trend is the only correct way to trade. No matter how nimble you think you are, trading against the trend will bring disastrous results.

As long as the market is making higher bottoms and higher tops on its swings, the trend is up.

Another Gann technique is to measure the swings of both rallies and reactions to determine time and price turns. If for instance you have been in an extended bear market or down trend, watch for the first rally in which both price and time precedes previous reactions. When this occurs it is usually followed by the previously mentioned KEY REVERSAL.

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.

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