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The Most Accurate Trading Indicator | Gann Formula with Cheat Sheet 😎
Pushkar Raj Thakur: Stock Market Educator 📈
Overview
This video introduces an advanced application of W.D. Gann's trading principles, focusing on calculating and utilizing Gann levels for various financial instruments, including those with decimal values. The presenter, Adib Noorani, explains how to adapt Gann formulas to different asset types like crude oil, cryptocurrencies, and gold, emphasizing the importance of using international market charts for analysis. The video also covers practical trading strategies, including specific candlestick patterns and risk management techniques, to enhance trading accuracy and profitability.
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Chapters
- Recap of basic Gann numbers and the need for advanced application across diverse instruments.
- Explanation of how different instruments (stocks, gold, crypto, forex) have varying price scales and decimal places.
- The challenge of applying traditional Gann analysis to instruments with decimal values.
- The goal is to provide a method to calculate and use Gann levels for any instrument, regardless of its price scale or decimal places.
Understanding how to apply Gann principles to instruments with decimal values is crucial for traders who want to use this method across a wider range of assets beyond simple whole numbers.
The presenter mentions that last time they focused on whole number squares, but this time they will cover squaring decimals, which is more complex.
- To handle decimal values, treat the decimal point as '1' and multiply the number by a factor (e.g., 1000 for 3 decimal places) to convert it into a whole number.
- After calculation, divide the result back by the same factor to get the Gann level in its original decimal format.
- The process involves squaring a number derived from the instrument's price, adding 1 if the square is even, and then converting it back to the instrument's scale.
- This method allows for the calculation of Gann support and resistance levels for assets like crude oil and cryptocurrencies.
This technique provides a systematic way to generate Gann levels for assets with complex pricing structures, making the Gann method applicable to a broader market spectrum.
For crude oil priced at 61.535, the decimal part is treated as 1, and the number is multiplied by 1000 to get 61535. Then, a number like 248 is squared (61504), 1 is added (61505), and this is divided by 1000 to get 61.505.
- It's recommended to perform analysis on international market charts (e.g., for crude, gold, silver) because they run 24/5 and avoid gaps caused by market closures.
- Indian market charts are influenced by USD INR fluctuations and taxes, which can distort price action and Gann level accuracy.
- Indicators like RSI can provide misleading signals on Indian charts due to gaps; it's better to verify them with international chart signals.
- Trade execution can still occur on Indian exchanges (like MCX) using analysis derived from international charts.
Understanding the impact of currency fluctuations and market hours on price data is essential for accurate technical analysis, especially when using methods like Gann that rely on precise price levels.
The presenter notes a significant increase in USD INR, which can affect Indian gold and crude prices, making international charts a more reliable source for analysis.
- Cryptocurrencies often have many decimal places (e.g., Dogecoin with 5, Shiba Inu with 9).
- The conversion method involves multiplying the price by a factor corresponding to the number of decimal places (e.g., 1 lakh for 5 decimal places).
- After squaring a derived number and adding 1 if necessary, divide by the same factor to get the Gann level.
- The process helps identify support and resistance levels for highly volatile and low-priced crypto assets.
This chapter demonstrates the versatility of the Gann calculation method, showing how it can be applied even to the most volatile and decimal-heavy assets like cryptocurrencies.
For Dogecoin at 0.19872 (5 decimal places), multiply by 100,000 to get 19872. The square root of this number is approximately 140.96. Using 140 and 141, Gann levels are calculated as 0.19601 and 0.19881.
- The strategy combines specific candlestick patterns (bullish/bearish engulfing, hammer, inverted hammer, morning/evening star) with Gann levels.
- Trades are taken when a recognized candlestick pattern forms at or near a calculated Gann level.
- A buffer (e.g., 0.1% for BTC, or a specific price range for gold) is used for entry to account for minor price fluctuations.
- Risk management involves trading in even lots to book 50% profit at a 1:1 risk-reward ratio and moving the rest to break-even, or targeting the next Gann level.
Combining price action (candlestick patterns) with static support/resistance levels (Gann) provides a robust framework for identifying high-probability trade setups with defined entry, exit, and risk parameters.
A bullish engulfing pattern forming near an upper Gann level can signal a buy entry, with a stop-loss placed below the pattern and a target at the next Gann level or a 1:1 risk-reward ratio.
- The video shows live chart examples on crude oil, Dogecoin, Shiba Inu, and Indian gold futures.
- Successful and failed trades are demonstrated, highlighting how candlestick patterns interact with Gann levels.
- The importance of liquidity is stressed; trading low-liquidity instruments can lead to failed patterns and inaccurate results.
- The presenter emphasizes that consistent practice and understanding market sentiment are key to mastering the strategy, not magic.
Seeing real-time examples and understanding why some trades succeed while others fail provides crucial learning for applying the strategy effectively and building confidence.
A screenshot of a crude oil chart shows multiple instances of bullish engulfing patterns reacting to Gann levels, with some trades resulting in profit and others hitting stop-losses, illustrating the practical application.
Key takeaways
- Gann levels can be calculated for any financial instrument by converting decimal prices into whole numbers for calculation and then converting back.
- Analyzing on international charts for commodities like gold and crude oil is often more reliable due to 24-hour trading and fewer gaps.
- Combining specific candlestick patterns with calculated Gann levels provides a structured approach to identifying trading opportunities.
- Effective risk management, such as trading in even lots and securing partial profits, is crucial for long-term success.
- The strategy requires practice and a strong understanding of market sentiment, not just pattern recognition.
- Trading in highly liquid instruments is essential for the reliability of technical analysis patterns and levels.
- While some trades may fail, consistent application and learning from both wins and losses are key to mastering the Gann strategy.
Key terms
Gann NumbersNatural NumbersDecimal InstrumentsInternational ChartsUSD INR FluctuationCandlestick PatternsBullish EngulfingBearish EngulfingHammerInverted HammerStop Loss (SL)Risk-Reward RatioLiquidityPrice Action
Test your understanding
- How can you adapt the Gann number calculation to instruments that trade in decimals, such as cryptocurrencies or crude oil?
- Why is it generally recommended to analyze commodities like gold and crude oil on international charts rather than Indian charts?
- What specific candlestick patterns are used in conjunction with Gann levels in this trading strategy, and why are they important?
- Describe the risk management approach recommended by the presenter, including lot sizing and profit-taking strategies.
- What is the role of liquidity in the success of trading patterns based on Gann levels, and why is it important?