Many articles and books have been written about WD Gann. I was fortunate enough to read some of his original writings back in the 1990s, a colleague of mine was part of a Gann Society that he paid a huge amount to join. I have studied Gann and have my own version of a Gann system. The most important statement that I read from Gann is “Time is the most important factor, when analyzing and forecasting market movements.” I could not agree more. In this article I will go over how I trade Pivot Points using Fibonacci levels and my version of Ganns principle of Time vs. Price.

The first points that you must find are what are known as swing points. A swing point is the most recent highest high, or lowest low. There has to be a minimum of 8 big figures between them to be considered moderate swing levels. You could use less point differences they are just not as significant. Once you identify one of these levels you move to the left on the chart (going Back in time) to find the other. I am going to use EUR/USD prices with the dates so you can find what I am doing and apply the analysis. Looking at the most recent price data(today’s date is 1/27/09) we have a solo top made on December 18th 2008 at 1.4720 level. We move to the left and find the lowest low at a double bottom made on October 27, and 28th 1.2330 level. Now we have the swing points to work with. We will find major levels of support and resistance to trade off of using Fibonacci ratios. Then find the daily pivot points to see if any over lapping occurs.

The formula to find the Fibonacci points are are follows. Take the highest high and subtract the lowest low to find the swing range. That would be 1.4720 – 1.2330 =.239 big figures. Fibonacci ratios are.382,.618,.8200(my ratio),1.382,1.618,2.236,2.618,3.618 We now take the range and multiply by the ratios..239 *.382=.091298 Now we would take the Highest High and subtract that Fibonacci factor. So first level of support would be 1.4720-.0913= 1.3807 Next level of support would be.239*.618=.147702 1.4720-.1478= 1.3242 Next level.239*.8200=.1964 1.4720-.1964= 1.2756 (just to pat myself on the back the low made on Jan 23 was 1.2765)

You can keep applying the other ratios if you like. They will be good until that top is taken out or a new low is made.

So once we have these levels calculated we will set up daily pivot points in order to see if any over lapping occurs (overlapping for me is 33points + or -), then I will give you my time verse price lesson. Keep in mind that these Fibonacci levels were past through on the way down, these same levels will now act as resistance on the way up. If they are breached they turn into support again. Lets go over the pivot point formula, and see how we apply it to the major Fibonacci levels.

The pivot point formula I am about to go over has been used for as long as I have been in the market(20+), and I was taught this formula by a guy who was in Forex since 1976. Like King Solomon said “There is nothing new under the sun” The pivot point formula takes on a new meaning when we have overlapping, with the Fibonacci levels. They become that much stronger, to take advantage of reaction points. Here is the Formula:

We must first calculate the base point. I calculate the pivot point on a daily bar because we are using daily data.(you can use this on any time frame, just keep the time sequence uniform, and I would not go less then 30 minute bars) Pivot Formula = High+Low+Close/3= x base pivot

2x-high=support 2x-low=resistance

I am going to pick today’s trading session.(yesterdays daily bar) to calculate. 1/26/09 Open 1.2974 High 1.3205 Low 1.2860 Close 1.3135

1.3205+1.2860+1.3135/3= base pivot 1.3066 2*1.3066-1.3205=1.2997 Support level 1 2*1.3066-1.2860=1.3272 Resistance level 1

Support Level 2 Base pivot -(R1-S1) 1.3066-(1.3272-1.2997)=1.3066-.0275=1.2791(Very Close to that Fib level) Support Level 3 Low-2x(high-Base pivot) 1.2860-2x(1.3205-1.3066)=1.2860-2x.0139=1.2860-.0278=1.2582

Resistance 2 Pivot + (R1-S1) 1.3066+(1.3272-1.2997)=1.3066+.0275=1.3341 Resistance level 3 High+2x(pivot-low) 1.3205+(1.3066-1.2860)=1.3205+.0206=1.3411

So these are our daily levels and we would plot them out on the charts with our old Fibonacci support levels that have become your resistance levels on the way up. So how do we trade these pivot points. Well the rule is to get long on a break above and short them on a break down. Easier said then done, because these are very reactionary points that can trade back and forth multiple times, cutting you up as they do. In order to prevent that from happening,you must give yourself a 35 pip stop loss(so if the market breaks up or down and holds above or below the pivot more than 12 minutes stay long or short with a 35 point stop. You need experience with Market Momentum.) This is where my version of Gann’s time verse price rules come into play. You can follow along using hourly charts, I am going to describe how I trade these points. This is what is know as discretionary trading, not a system per say. However, you now can work out your own rules to trade these points. My experience has proven to me that if the trades move quickly into the money,we are on the easy side of the market, and we will get out when the market momentum starts to slow.(I use a trailing Stop order.)