the hAnDbook oF teChnICAl AnAlySISexpect a top or bottom in the market. Assume that it took 40 units of time for price
to traverse 40 units of price, and in the process a market top or bottom was created.
A subsequent top or bottom is expected to occur after the next 40 units of time have
elapsed. As long as price continues to oscillate within this range at or close to the ideal
trend rate, a price cycle will develop. This is one reason why Gann’s study of squaring
the range led him to the study of price cycles. See Figure 19.2 for an actual squaring
of the range on the continuous chart of wheat. We observe a price cycle developing as
price oscillates within the range at the selected trend rate or scale.
There are three main approaches that modern Gann practitioners take in or-
der to determine the scale or trend rate:
■ (^) Approach 1: Measured from Significant Trough to Trough/Peak to Peak
■ (^) In an uptrend: Divide the distance between two lower significant troughs by
the duration between the two troughs.
■ (^) In a downtrend: Divide the distance between two higher significant peaks by
the duration between the two peaks.
Figure 19.3 depicts approach 1 for uptrending action (the reverse applies
for downtrending action, not shown).
■ (^) Approach 2: Measured from Significant Trough to Peak/Peak to Trough
■ (^) In an uptrend: Divide the distance between the lowest significant trough and
highest significant peak by the duration between the two.
■ (^) In a downtrend: Divide the distance between the highest significant peak
and lowest significant trough by the duration between the two.
Figure 19.4 depicts approach 2 for uptrending action (the reverse applies
for downtrending action, not shown).
fiGure 19.2 Squaring of the Range and the Creation of Price Cycles.