the hAnDbook oF teChnICAl AnAlySISAlthough some modern Gann practitioners employ Approach 3 to determine
the trend rate via statistical means (rather than from a geometrical perspective),
this was not an approach originally used by Gann. Hence, most Gann practitio-
ners tend to resort to employing Approach 1 or 2 instead.
All three approaches attempt to measure the scale or trend rate that would
depict price moving up or down the 45‐degree line in balance with time. Both ap-
proaches have advantages and disadvantages. Approach 1 is most commonly em-
ployed. It uses conventional uptrend and downtrend lines drawn from significant
price inflection points to measure the scale or trend rate. This works well in most
cases, except when prices are extremely volatile. Approach 2 is more indicative of
trend rate when the market action is volatile. It captures the actual rate across the
entire action rather than relying on the extension of two relatively close troughs
or peaks. Approach 3 works equally well under most market conditions.
For example, let us assume that we are using Approach 2 to calculate the
scale or trend rate for a downtrend in Gold. Assume that the highest significant
peak is $1920.92 and the lowest trough is $1527.00 and duration between
the two inflection points is 179 days. Therefore the scale equals ($1920.92 −
$1527.00)/179 = $2.20 per day. The chart is now drawn so that each price
unit is $2.20 and each time interval or unit is 1 day. When plotted, the 1× 1
line is drawn at a 45‐degree angle. See Figure 19.5. We observe that Approach
2 produced a 1×1 line that proved to reflect subsequent Gold prices very close-
ly, acting somewhat as a median line, or balance line, that is parallel to the
original 1×1 line.
Note that in order to determine the scale most representative of price action,
it is best to sample at least a couple or more trend rates and find the average trend
rate. This is may be done on daily, weekly, or monthly charts.
fiGure 19.5 Finding the Scale or Trend Rate in a Downtrend via Approach 2 on a
Daily Gold Chart.
Source: MetaTrader 4