The Gann Angles are named after W. D. Gann, a 20th century market

Market

A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

 theorist. Gann described the use of the angles in the stock market

Stock market

A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

 in The Basis of My Forecasting Method, a 33-page course written in 1935. The legitimacy of Gann's techniques has been seriously questioned. Calculating a Gann angle is equivalent to finding the derivative

Derivative

In calculus, a branch of mathematics, the derivative is a measure of how a function changes as its input changes. Loosely speaking, a derivative can be thought of as how much one quantity is changing in response to changes in some other quantity; for example, the derivative of the position of a...

 of a particular line on a chart in a simple way.

Each geometrical angle (which is really a line extended into space) divides time and price into proportionate parts. The most important angle Gann called the 1x1 or the 45° angle, which he said represented one unit of price for one unit of time. If you draw a perfect square and then draw a diagonal line from one corner of the square to the other, you have illustrated the concept of the 1x1 angle, which moves up one point per day. Other important angles were the 2x1 (moving up two points per day), the 3x1, the 4x1, the 8x1, and the 16x1. When the angles are drawn in a group, they are often called a Gann fan. Angles may either be drawn ascending from price bottoms, as just described, or descending from price tops.

As with other forms of technical analysis

Technical analysis

In finance, technical analysis is security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands...

 of stock price movements, the Gann angle model contradicts the weakest form of the efficient market hypothesis

Efficient market hypothesis

In finance, the efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.There are...

which states that past price movements cannot be used to forecast future price movements.

Using Gann angles

Gann watched for important tops and bottoms to form on a daily, weekly, or monthly chart and drew his angles from these changes in trend. When the trend is up and the price stays in the space above an ascending angle without breaking below it, the market is strong; when the trend is down and the price remains below a descending angle without breaking above it, the market is weak. The market shows its relative strength or weakness according to the angle it is above or below. For example, if the price is above the 2x1 the market has shown itself to be much more bullish than if it is above the 1x1. In his angles course, Gann argues that when an uptrending price reverses and breaks under an ascending angle, the tendency of the price is to go to the next nearest angle below it; likewise, when a downtrending price reverses and breaks up through a descending angle, the tendency of the price is to go to the next nearest angle above it.

Question of Scale

It is not always practical to give the 1x1 a value of 1 point of price for each day, as Gann observed in his course. Let us say that the Dow Jones Industrial Average is trading around 10,000 points at the time we are analyzing it. It is obviously not useful to draw a 1x1 along a chart of 10,000 days! In such cases, Gann said that we must devise another scale, in which we postulate that a certain number of points taken together (for example, 100 or 1,000) is to be considered a single price unit in the 1x1 angle, the same as a $100 or $1,000 bill could be considered a single bill. Critics note, however, that Gann did not set down rules for determining how many points should be considered a single unit in such cases and hence that the positioning of the angles on a chart is entirely arbitrary and not scientific; however, there is controversy as to whether Gann completely or partially revealed his methods..