ASX Charting Course

Chapter 40

Gann

Swing Charts

One of the simplest of Gann’s methodologies is a complete trading system using swing charts. Swing charts are most commonly formed from daily charts, but he also worked with two day swing charts and even more complex three or five day swing charts.

The construction of a swing chart results in what Gann called a Trend Line Indicator. Using the high and low for the period, whichever exceeds the previous day becomes the Trend Line Indicator.

Construction

There are four classifications of day types all with respect to the previous day or period.

1. Up day = higher high and higher low

2. Down day = lower low and lower high

3. Outside day = higher high and lower low

4. Inside day = lower high and higher low

The Trend Line Indicator moves to the high for the period on an up day and keeps moving higher until a reversal is recorded. A reversal would come in the form of a down day or an outside day. If the market has three up days in a row that will convert into one vertical line covering the range to the high and then a horizontal swing line.

The swing line swings to the low on a down day, and continues until the next reversal. In this case, an up day or possibly an outside day, depending on when the low was made.

In the event of an outside day in an uptrend, if the high is made before the low on the day, the swing indicator is pushed to the extreme for the day, in the direction of the trend and then reversed to the low of the session. This is a reversal. If the low is made before the high then the Trend Line Indicator just keeps moving higher, to the high for the session.

An inside day has no impact on the Trend Line Indicator.

There are two charts below. The first (fig 63) displays a normal daily chart that captures a correction rather than a trend. Although it looks like an up trend may be developing toward the end of the sample.

The next chart is a result of applying the swing chart rules. The result is a compressed chart, relative to the raw data above. It reflects well the fact that swing charts remove the constant time interval from the data. Each vertical line represents an indefinite period of time. It could be one day or as many days as the market keeps making higher lows.