Introduction

The Gann Square of Nine is a technical analysis tool developed by American financial trading theorist William Delbert Gann, primarily used to predict key price levels and time turning points in financial markets.

Author Profile

William Delbert Gann (1878-1955) was a renowned trader in the early 20th century, famous for his unique technical analysis methods. He excelled at predicting price movements and timing in stock and commodity markets, achieving extraordinary trading success that remains unmatched today. Gann’s trading methods combined elements of mathematics, astronomy, and geometry. He believed in a natural order in the universe that similarly influenced market price movements. He often quoted Ecclesiastes (such as “What has been is what will be, what has been done is what will be done”) to support his understanding of market cyclical changes.

Among Gann’s notable success stories: he turned $130 into $12,000 in 30 days in 1908; grew $973 to $30,000 in 60 days in 1923; and in 1933, achieved a 4000% profit with 422 winning trades out of 479 total trades. Gann’s trading method relied on mathematical principles, drawing support and resistance lines along which he believed markets would move. He also made predictions based on time cycles, dividing the year into multiple periods and believing that key market reactions often occurred at specific time points.

Furthermore, Gann incorporated astronomical and astrological events into his analysis, believing that planetary movements influenced market behavior similar to how the moon affects tides. His theory combined technical analysis, spiritual beliefs, and complex time cycles to predict market movements accurately. Although his theories haven’t been fully replicated to this day, they remain a subject of study for modern traders.

Working Principles

The Gann Square of Nine is a spiral matrix that starts with the number 1 at its center and increases clockwise, forming multiple layers of square structures. Each layer of numbers expands outward from the center.

The expansion of the Gann Square follows specific mathematical progressions. Each unit expands according to a pattern: first circle: 8 units, second circle: 16 units, third circle: 24 units, and so on infinitely.

In the Gann Square, key support and resistance levels often appear at diagonal and cross-lines intersections. Gann believed that numbers on the center, vertical axis, horizontal axis, and diagonal lines typically represent important price turning points in the market. Therefore, investors should pay special attention when market prices approach these key positions.

Square Intersections

The Gann Square intersections include “cross lines” and “diagonal lines,” each affecting the market differently:

Cross Lines: These primarily include angles of 90, 180, 270, and 360 degrees. These angles are considered more significant and impact the market more.

Diagonal Lines: These include angles of 45 and 135 degrees. While still important, these angles have relatively less influence and carry lighter weight.

Key Support and Resistance Levels: Through the Gann Square, investors can identify potential support and resistance levels in the market. These levels typically appear in areas related to 45-degree angles, which are considered critical points where market prices may reverse.

Starting Point Setting

The starting point of the Gann Square is typically set at a historical market top or bottom - a key price level. This price is placed at the center of the square, serving as the reference point for the entire square. From this base, support and resistance levels are gradually extended following the rules of the Gann Square.

Step Size Selection

In the Gann Square, choosing the step size is a crucial decision that directly affects the accuracy of the chart and the effectiveness of market analysis. The step size (or unit step) determines the size of each grid or price interval, and how the chart’s precision is adjusted according to market volatility.

Selecting step size based on market volatility:

High Volatility Markets: Larger step sizes should be used for markets with high volatility. This helps smooth out price fluctuations and reduce excessive short-term noise. For example, in stock indices, futures, or cryptocurrency markets where volatility is typically high, using larger step sizes (like 1, 10, 100) can help identify more significant turning points.

Low Volatility Markets: For markets with lower volatility, smaller step sizes like 0.001, 0.01, 0.1 can be chosen to capture more subtle price changes. This is particularly useful when the market is in a consolidation phase, as smaller step sizes help identify short-term support and resistance.

Matching step size with candlestick timeframes:

Short-term Charts (1-minute, 5-minute, 15-minute): For short-term charts where price fluctuations are frequent, smaller step sizes are needed. This creates a denser grid in the Gann Square, better reflecting quick market reactions. For example, choosing step sizes of 0.001, 0.01, and 0.1 allows for more sensitive price reactions.

Medium-term Charts (1-hour, 4-hour): For medium-term charts, slightly larger step sizes like 1, 10, and 100 can be used. This helps filter out minor price fluctuations and focuses on major trends and turning points, suitable for medium-term traders.

Long-term Charts (daily, weekly): Long-term charts should use larger step sizes to reflect longer-time-period market trends. In this case, step sizes like 500 and 1000 can be used to identify macro trends and cyclical reversals more clearly.

Time Cycles

The chart shows Bitcoin’s price movements from February 2024 to October 2024, marking the duration of each upward and downward trend. According to the annotations, the time cycles are 23 days, 19 days, 49 days, 34 days, 28 days, 23 days, 19 days, 11 days, and 23 days.

These cycle durations perfectly align with the time cycle patterns described by the Gann Square of Nine, where 11, 19, 23, 28, and 34 fall on the square’s cross lines, while 49 falls on its diagonal line.

Gann’s theory suggests that market price movements are time-dependent and follow predictable patterns. The Gann Square of Nine can help predict trend durations and potential reversal points.

Key Price Level

The chart shows Bitcoin’s price movement, with 56,550 as the starting point of the wave, after which the price experienced several key support and resistance levels. Using 56,550 as the center of the Gann Square of Nine and choosing 300 as the step size, we can construct the following square.

By analyzing Bitcoin’s candlestick chart, we can observe these key market behaviors:

Diagonal Line Key Points:

60,150 corresponds to the square’s diagonal line, becoming a support level after price pullback, where the market bounced back upon touching this level.

65,500, also located on the diagonal line, became a short-term top after an upward trend, where price met resistance and retreated.

Horizontal Line Key Points:

72,150, as a horizontal line key level in the square, ultimately became the major resistance level for this wave. Upon reaching this point, the market encountered strong resistance and subsequently entered a correction phase.

This demonstrates the effectiveness of the Gann Square of Nine in trend prediction. Its diagonal and horizontal line levels effectively provided potential market support and resistance levels and revealed possible trend reversal zones. By incorporating Gann theory, traders can closely monitor market movements at these key price levels to develop more precise trading strategies.

Controversies

The Gann Square of Nine has long been a debate in financial trading, with the core controversy centered around the conflict between its “scientific validity” and “practical utility.” Supporters and critics hold starkly opposing views. Proponents argue that the Gann Square’s value lies in its historical validation and practical applications. Gann himself, as a legendary trader in the early 20th century, demonstrated remarkable accuracy in predicting market turning points, leading some traders to view his theoretical framework (including the Square) as a “market code.” Particularly in highly liquid instruments like stock indices and commodities, the positions indicated by the Square may create psychological consensus due to order clustering. Supporters believe that human psychology and group behavior form recognizable patterns, which the Square captures through mathematical mapping.

Critics question the logical foundation of the Gann Square and adhere to the Efficient Market Hypothesis, arguing that prices already reflect all information and any fixed formula attempting to predict the future will ultimately fail. They view it as a forced combination of “numerical mysticism” and financial markets. From a scientific perspective, the Square’s predictive mechanism relies on subjective parameters, potentially yielding opposite conclusions for the same price using different settings. Academia generally maintains that Gann’s theories (including the Square) haven’t passed rigorous statistical testing. Critics also point out its effectiveness may stem from “survivorship bias”: people tend to remember successful predictions while ignoring numerous failed signals. Furthermore, Gann’s theories incorporate astrology and mysticism (such as emphasizing “time cycles related to planetary movements”), which conflicts with modern finance’s rational framework.

Interestingly, the controversial nature of the Gann Square has become a source of its longevity. In certain scenarios, it can be remarkably accurate. However, this effect is unstable, and consensus can quickly break down when market conditions change (such as during black swan events). Thus, the Gann Square remains in a gray area: devotees see it as the crystallization of Gann’s wisdom, while skeptics dismiss it as a “remnant of financial alchemy.” This controversy may never be resolved, much like the nature of technical analysis itself—it is simultaneously a science, an art, and a reflection of human nature’s interplay in markets.

Conclusion

The Gann Square of Nine remains a unique market analysis tool that continues to spark widespread discussion in the trading community. Built on mathematical principles, geometry, and time cycle theory, it attempts to reveal the inherent patterns in market prices. However, its predictive capabilities have been a subject of ongoing debate. They show remarkable accuracy in certain market conditions while being difficult to validate universally.

As Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” For traders, while the Square of Nine may not be an infallible “market code,” it provides a structured perspective for observing chaotic markets, helping people find logic and patterns in complex market environments.