The daily chart of the SPY above shows the recent price action. For the first time since Decembers of 2013, the market had four losses in a row, measured from close-to-close. See the shaded portion of the chart. For Gann aficionados, this strikes a familiar chord. In his book, “Wall Street Stock Selector,” Gann talks about a trading technique he called “balancing a stock.” He gives the example of US Steel trading for months on end in an uptrend, never closing more than 3 consecutive days in a row with a close-to-close loss. Gann advises us that measuring this statistic is the true way to tell when your stock or market in is an uptrend and when in a downtrend; and when the trend changes.
Gann said that after a long period of time when the stock is in an uptrend and not closing more than 2 days in a row with a close-to-close loss, that when the stock or market finally does close down for 3 consecutive days on the close that the trend has finally changed. Now with Gann, he will never give you the true method outright like that in a public writing. If he does, he will change one or two variables in the example. So here, we can surmise that there is something to this technique. Gann is really demonstrating a balanced center line with this dialogue, but also showing a valid technique for trend change. Except we know that the number is 4 days in a row instead of 3.
One can make the same odds applying gambling theory with one catch. When W. D. Gann determined the trend direction and duration in advance with the “Arcana,” he also determined that the odds of a stock closing 6 days in the same direction within a year would have a chance of about 1 occurrence. But when during this trend time, the odds of US Steel closing more than 3 times in the opposite direction of the trend in a row where about once during the entire trend.
This balance line technique behind Gann’s public example is taught in our “W. D. GANN: MAGIC IN THE MARKETS” Course. The trading ramifications are pretty great. Lets say that since 2013, you could just wait until the market closed 3 straight days down from close-to-close. On the fourth day, you would have pretty much known that the market would close higher than the previous day. Bingo there is your trade- you can even buy on the close of the 3rd down close. So onetime you’ll get stopped and you know the game is over.
DISCLAIMER: The examples above are given as demonstrations of technical analysis and are therefore hypothetical and not actual trades. They do not represent actual account results nor include the entirety of all predictions we make.