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Past performance does not guarantee future results. That disclaimer is burned on the minds of every forex trader.

Wilbert Delbert Gann never believed that. Gann was born into a cotton-farming family in East Texas in 1878, four years before his hometown of Lufkin was founded. Gann began trading at the age of 24 and suffered more than his share of losses in his early years. He chalked up his setbacks to a lack of knowledge and took to the library stacks, studying stock transactions going back to 1820. Gann spent night and day for nine months tracking stock movements and related statistics.

Guest post by FXTM

Gann concluded that changes and variations in the values of stocks were governed by natural laws. Over the next ten years he honed his theories, applying scientific laws to stock speculation. He looked specifically at only three historical patterns to make bets on the future price, time periods and patterns. He reasoned that the cyclical movements in stock prices were analogous to the vibrations of a plucked wire, predictable by virtue of scientific laws.

He applied his studies to the development of what became known as Gann Angles, geometrical applications to stock charts that determine the derivative of a price from the observation of tops and bottoms. This technical tool can be applied to a forex market on a daily, weekly or monthly chart. With a Gann Angle, when the trend of a currency price is up and the price stays within the space above an ascending angle without tripping below it, the market is a strong one. If the phenomenon is the same in the mirror image, it is a weak market. Gann argued that this technical application can determine entry and exit points in a market.

Analyzing a forex market with Gann angles takes practice but here are the basics.

Begin by selecting a time frame for historical results. Often times this is determined by the distances in which significant price movements take place. Next the forex trader must make a judgement call on the high and low marks used to draw the Gann lines. There are nine different Gann angles that can result; the purest is a 45-degree angle which represents a 1:1 ratio between time and price. Ratios higher than that signal a bullish market; lower is a bear market. This is important for traders who look to match their trades to a trending market.

W.D. Gann supposedly used his angles to build a $50 million fortune. His speculations were often uncanny. One oft-told tale is his play with the New York Central Railroad when the stock stood at 131. His calculations convinced him the price would hit 144 before it struck 129 and he was proved correct.

Forex traders can find Gann Angles to be a valuable tool in analyzing and trading in a currency market with more accuracy. Learning patterns of volatility, price scales and market movements will sharpen a traders analytical skill. That is if you are willing to believe that past performance CAN guarantee future results.

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