How to use Gann fans in trading?

How to use Gann fans in trading?

Gann fan is drowning tool used in trading, William Delbert Gann developed it, and it is considered a popular trading tool. Many traders used this incredible tool for decade. So Gann Fan is the most well know indicator and it was used by Gann. 

So, series of angles basically compose Gann fan which has drawn from a pivot low or pivot high.

Gann fan has prime angle and other 8 ones, so the prime angle of it is a 45 degree 1*1 while in uptrend and 315 degree while in downtrend.  The other 8 rest angles are 1*2, 1*3, 1*4, 1*8, 2*1, 3*1, 4*1, and lastly 8*1.

Trading methods using Gann fan:

In two ways we can use Gann fan indicator, by using it for trend reversal trades and trend following. Gann fan indicator can predict the possible trend line or reversal points or retracement; in addition it basically functions as trend lines. 

Trend Continuation:

Depending on the trend direction, Gann fan indicator works as support and resistance lines like trend lines. In the case of an uptrend, we can use Gann fan to enable us to determine possible support areas and pullback zones. We can distinguish between the trend lines and Gann fan where the first one requires two low points in an uptrend, whereas in the second require one high and one low point. Thus traders can enter into trade early because Gann fan does not require, like trend line, two high points.

We can see Gann fan indicator in an uptrend through 4 hour chart of GBP/USD. By connecting one low point (1) and one high point (2) we got 1*1 line of Gann fan.  The angles 2*1 and 3*1 are considered as possible reversal point and support.  In this chart this pair has got support from 3*1 line of Gann fan and it bounced back to the prevailing uptrend.

Another example after 4 hour in chart of GBP/USD we can see Gann fan trend following trading method in a downtrend. So we find that 1*1 line has drawn by taking 1and 2 points, and we can see clearly the point 3 is showing a pullback from the resistance. We conclude that after getting resistance from 3*1 lines, the currency pair has continued its prior downtrend.

Trend Reversal:

We can use Gann fan to trade trend reversals, and it is similar to the method to trend line breakouts. A bullish reversal can be confirmed by a down trend line breakout, and as we know before that Gann fan is similar to trend lines, thus trend reversal signals can be used by these lines.

In this example, we can see a bullish trend reversal in 4 hour chart of USD/CAD. And by connecting point 1 and point 2 we can draw Gann fan. Thus entry signal generated as soon as candle breaks out 2*1 lines for long position. And we should take exit signal when candlestick hit or touches 4*1 or 8*1 line.

Now 4 hour chart of USD/CAD, we can see breakout, and entry and exit signal for a short position.

We can draw 1*1 lines by taking point 1 and point 2. As soon as candlesticks break down 2*1 lines, traders enter into a short position. So as soon as candle hits 4*1 lines, an exit signal should be taken.

Summary

Gann fan indicator can be combined effectively with many other indicators like Fibonacci retracements, trends lines, etc. so in order to draw Gann fan properly it is crucial to identify low points and swing high.