I have often wondered how dedicated W.D.Gann must have been to analyse markets for over 50 years without the benefit of our modern day computers. To draw all of the charts by hand, then go through each bar and analyse figures, angles, retracements, time counts/it truly was a remarkable feat and the techniques contained in his body of work can still be used in today’s electronic markets.

After all, humans haven’t changed all that much since Gann’s great discoveries/we still harbour greed, fear and panic and it takes extreme dedication and discipline to overrule these basic emotions when trading with our real money on the line.

One of Gann’s greatest discoveries was the Time factor. Gann discovered the movement on the horizontal axis was even more important than the price movement on the vertical axis. Even today many people struggle with this concept, mainly because the Time factor is divided into several basic concepts.

Here today we can use part of Gann’s work with the S&P 500, a market created long after Gann’s passing, but nonetheless an excellent example of his technique at work in our time.

Gann told us of a technique using what he called the ‘first range out’.

Here on the next chart of the S&P 500 we can see the major top that formed in October 2007, the beginning of the Global Financial crisis. The pullback was as spectacular as it was devastating to many traders worldwide. Eventually though, the market did find support to end this downtrend and we have marked the end as point A, shown here using the Time Price label tool as March 6, 2009 at a price of 666. How ironic that the devils number should be the point of a reversal to higher prices/

From point A, the next major high, marked point B, occurs June 11, 2009 at 956. This is the next major high because point B represents the top before a low goes lower than the previous low. A Gann swing chart will show this effectively, but only after point B does a low go lower than the previous low.

Gann would have made a careful record of the details of the first range out, the rally between point A and point B. Note that the distance in price is 289 points and Time between the two points is 67 bars or trading days.

It was Gann’s discovery that the first range out was a key pointer to the next rally in the bull market campaign if the market does eventually trade higher than point B. In other words, he found that the subsequent rallies in the market would be relative to, and based upon, the first range out from the major low.

Now we look at the next chart below  and we can see the subsequent rally from point C to point D. Again, there is a strong upward trend that is ended at point D where a significant pullback occurred; indeed some called this move a correction rather than a retracement.

Point C is July 8, 2009 at a low price of 869. Point D is a high point Jan 19, 2010 at a high price of 1150. Now we can see exactly what Gann meant when he said the first range out is a guide to future movements, as the Time count between point C and point D is 134 trading days, exactly double the time count of 67 days between point A and B.

Whilst the time count is exactly double, the price is very close to being equal, with 289 points between A and B and 281 between C and D. This is close enough for traders to say that the market repeated the first range out in price in double the time.

The fact that markets do this time and time again is remarkable, and Gann knew these facts in his trading career, hence his ability to be selling when everyone else was buying new highs.

It also gave him the extraordinary ability to forecast future highs and lows based on previous market movements. To give you a current example of how he did this, we move to the final chart above.

Now we can see the final chart with a projection I made several weeks ago based on Gann’s work. I will be glued to my charts around May 13 2010, as this will be the repeat of the first range out. Point E is the last major low formed February 5, 2010 and 67 trading days from this low marked as point F, the repeat of the time count from the first range out, brings us to a potential high May 13, 2010.This could be the end of the bull market rally we have seen since March 2009 and if so, I expect to see a considerable retracement from this date. At the very least it should be a minor retracement but perhaps we will see the repeat of the 2007 bear market campaign if the situation in the Europe region isn’t resolved or perhaps deteriorates/ Since this article was written, the British general elections were announced to be held on May 6. If the election changes government or a hung parliament is the outcome, the effects could be disastrous for everyone, and this may have the effect of bringing our forecast to fruition.

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