Fan Gunn is a technical analysis tool that is used as one of the components of the trading system (often the main one). Based on the indicators of the fan, developed by the scientist with the surname Gann (after whom he is named), the support and resistance lines, the likely reversal points of the trend, the corridor in which the currency pair will be saved, etc. are determined.
Building a Fan
The main thing is to properly build a Gann fan, because otherwise it will not be possible to obtain reliable information in terms of technical analysis. The theory is based on the assertion that the price changes by the same amount per unit of time. For the S & P 500 stock market index, the price changes by one cent per unit of time. That is why the main line of the fan is built at an angle of 45 degrees.
All other lines are additional and make up a certain part of the angle; they are built on the basis of the statement that the price changes by 2, 3, 4, and so on units per unit of time.
It is believed that the line, built at an angle of 45 degrees, is the main, and all the others are optional. But the essence of the Gann fan is precisely that for a unit of time the change in the value of a currency pair is not equal to one, but amounts to some other value (different for different pairs). Therefore, initially it is necessary to determine the magnitude of the changes, having obtained the relevant data from the personal calculations of the traders, or to obtain it on their own by conducting independent calculations on the quotes provided by the broker.
How to use a Gann Fan?
In order to properly use this technical analysis tool, you must first calculate the amount of price change per unit of time for a given currency pair, then select the appropriate timeframe.
As the point from which the fan is constructed, the maximum or minimum of the price chart is used over the set time interval. The main line is drawn from the top at the right angle (depending on the rate of price change per unit of time). The remaining lines are drawn at proportional angles, all of which are more or less strong levels of support and resistance. It is believed that the price continues to move between the Gann fan lines at a certain time interval, which can be used to make decisions about both opening a position and forecasting the movement of a currency pair.