365 days is an important cycle of one year. In a circle there are 360 degrees which very nearly correspond to this cycle. In other words, one day is equal to one degree of the circle that the earth makes around the sun. Hence the significance of the important divisions of the circle (into angles) on the chart. These angles are 45, 90, 120, 135, 180, 225, 240, 270, 315 and 360.
Dividing a line parallel to the 90 degree division of the circle we get a square. Divisions of this square gives important angles on the charts.
There are two kinds of cycles:
- Time cycle or natural cycles and
- Cycles derived from the significant prices.
And these cycles will have important divisions on 1/8, 1/4, 1/3, 3/8, 1/2, 5/8, 2/3, 3/4 and 7/8. Thus the 30 year time cycle will be divided into important probable turning points as follows:
1/8 – 3.75 years
1/4 – 7.5 years
1/3 – 10 years and so on.
The significant time cycle/squares are Square of 52 on weekly charts.
Use it on important high/low as well as on those points which start a 90 day cycle. Also two squares or a cycle of two years can be used. Inner squares (squares formed within the square) and outer squares (squares of the same size placed adjacent or diagonal to the square) should also be seen when price moves into the same. Square of 90 is also important – in the same manner as square of 52 on weekly charts and monthly charts.
Square of 144 is the most important square for use on monthly charts. These cycles have influence on price in terms of absolute numbers in addition to the time cycles they signify. It means that a movement of 144 point in a stock is important by itself.
Weekly and monthly time cycles are the most important cycles.
The cycles derived from prices are based on High, Low and Range (i.e. difference between high and low). The most powerful is the square of the range. The absolute number at high, low or that of range is assumed to be forming a time cycle with so many days, weeks or months. In other words, a high at 60 means a time cycle of 60 days/weeks/months.
For the below points visualize using gann box it will be easy to understand.
Thus a cycle derived from prices will have two axis – Vertical price axis and horizontal time axis. Significant changes can be expected at important divisions of price or time. But the most significant changes should be expected at the angles made by combining the two. These angles are made on the square of the price. Here square does not mean price raised to the power of two. This is the geometrical square where the length of one side is equal to the price. The square is drawn down from high and up from low. The square of range can be made down from top or up from low. In a square of high at say 60, drawn on daily graph will have its corners at the following four points – 1) at the price (at 60) 2) at the price (at 60) 60 days away in future i.e. 60 on price axis 60 days to the right on the time axis from the day on which the price has reached 60. 3) at zero on price axis just below the high and 4) at zero 60 days to the right of point 3.
If the price moves down one point each day the price will reach to the point 4, i.e. 0 on the 60th day. This action is called squaring off of the price. The angle of fall will be 45% on the square. This is also referred to as 1×1 angle i.e. fall of one unit in one day. In same fashion we can draw angle 2×1 i.e. fall of two units in one day and so on. The most significant angles are 2×1, 1×1 and 1×2. These angles are drawn from point 1, 3 and the mid-point between 1 and 3 and the mid-point on 2 and 4.
Crossing over of the angles drawn on the square are considered probable turning points. Angles from 50% mark should always be seen.
When the price breaks below 45% angle line it signifies a weak position and indicates a decline to the next angle. If it again crosses the 45% angle it is said to have regained its strength. At the crossover of these angles distance from the base i.e. the day of high/ low is important. Larger the distance, more powerful the trend is likely to be.
1/2 is the most important level. This is the centre of gravity. If the price falls below this level and bounces back to touch this level again, on the first such occasion it is good set up to shortsell. If the price comes to 50% of high and 50% in time, it may be a high probability buy which may result in 3 months fast move up on the weekly chart.
The third time against any support or resistance zone is the dangerous time. The 1st, 2nd, 3rd, 4th, 7th, 9th and 12th squares are the significant squares of lows but all should be monitored. (i.e. the price levels at 2,3,4,7,9,12 times the low).