You may have seen Gann Fans and think they look difficult to draw but they are actually very easy. I will show you how to add them to your chart and how to trade them as well as combine them with other indicators to improve your strategy. Correctly using fans can help identify trends, locate support and resistance levels, project price targets, and much more.
What is a Gann fan and How Does it Work
Gann Fan was developed by a financial analyst named W.D. Gann. It is an indicator that overlays over a chart using a 45-degree angle called the 1/1 Line. From the 45-degree angle line, there are four lines that fan out above and below at the angles of 82.5, 75, 71.25, 63.75, 26.25, 18.75, 15, and 7.5 degrees. The lines created by the fan act as key support and resistance levels. The 45-degree angle is the most important because it can determine whether the price is in a bear or bull market.
How to Draw Gann Fans
To draw a Gann Fan, the first thing you need to do is find a major low or high on a chart. After that you then draw a 45-degree angle from that low or high using the angle tool that most trading platforms have. This is shown on the chart of Nvidia (NVDA) stock in the above image.
Then next you simply use the Gann Fan Tool and draw the line from the start of your 45-degree angle and align it with the 1/1 line. The tool will then correctly space the other lines for you. There are also Auto Gann Fan Indicators but it can sometimes be easier to draw them yourself.
Gann Fan Trading Strategy
Trading Gann Fans are very simple because the lines act as support and resistance levels. When the price breaks a line, you can trade that direction of the break or look for places where it could bounce off support or resistance. The fan lines work well as stop loss levels as well.
You can also combine this strategy with Fibonacci Retracement Levels. Many times the Fan levels will coincide with a 61.8% Fib Line which will indicate it is a strong level to watch. In the image above you can see how the Fibonacci and Gann Fan lines meet which is exactly where the price found support.
To learn more about Fibonacci Levels read What Is The Fibonacci Sequence and How Traders Use It.
Combined with other indicators the Gann Fan can be a very useful tool to trade with. It can be a great way to identify opportunities in the market. As always use proper risk management with any strategy you are trading.