Gann numbers, an investing tool developed by W.D. Gann, measure the slope of a stock's price as an indicator of support and resistance points in stock pricing, when price and time are plotted on a one-to-one graph. While Gann's methods are questioned because of their reliance on past data as a prediction of a stock's price, many of his followers believe that determining a point when an investment's slope changes from one Gann number to another can be key to determining pivotal points in any stock's price and its future performance.
1. Using a pencil and a ruler, draw an x-axis and y-axis on the graph paper, with its origin -- coordinates 0,0 -- near the lower right-hand corner of the graph.
2. Determine your scale of measurement for the x- and y-axis on your graph. Traditionally, the x-axis represents price, and the y-axis represents time. Increments on both axes must be the same for each line on the graph. Depending upon the stock's volatility, prices may be listed at $1, $2, $10 or another increment. The time measurement may be indexed daily or weekly.
3. Plot the stock's price per each time increment using historical data. Connect the data points to create a rough line graph.
4. Draw a line using a ruler that connects the most recent stock prices on the graph, developing a straight line from the current stock price.
5. Locate the locus at which the ruler-drawn line crosses an x and y coordinate exactly. Label this point A. Locate the closest locus the ruler-drawn line crosses from point A. Label this point B.
6. Count the number of squares along the x-axis from point A to point B, and count the number of squares along the y-axis between the two points. Express this number as a ratio (x:y), such as 2:1 or 1:1. Simplify the ratio so that the y-axis value is 1. The other number is the stock's Gann number.
Items you will need
- Graph paper
- Historical stock prices
- chart background image by Stasys Eidiejus from Fotolia.com