WD Gann was an amazing graphic artist and merchant in the early 20th century. One of the most powerful methods of technical analysis he shares in the works he has left behind is the application of “percentage movements”.
Gann believed (and demonstrated) that important price levels could be determined by dividing ranges into 8 as well as 3. He then pointed out that these divided price points have different levels of importance.
For example, dividing the range by 8, you would get percentage levels of 12.5, 25, 37.5, 50, 62.5, 75 and 87.5. And of course there is 100%, although the focus is on the sections of the full 100% range.
The first level of importance is usually considered to be a level of 50%. Then it will be 33.3 and 66.66 (third).
These levels can be set in a market that adjusts (going back to the price range from which the divisions were derived) to try and determine price levels that can stop the adjustment, or can be added at the end of the price range to determine the levels of expansion (out of range).
For the first example, let’s say the price moves below 100 and stops at 200, then starts down again. The range is equal to 100 points, so the support levels will be 200 (upper part of the range) minus 12.5 (187.50), 25 (175), 37.5 (162.5), etc.
For the second example, using the same range as the previous example, the extended price levels will be 200 (again the upper part of the range) plus 12.5 (212.5), 25 (225) … 50 (250), etc. And of course you would do the same with the levels calculated by third parties.
These levels act as price decision points, where the technical analyst and the trader must determine whether the price is likely to bottom or peak at this level. While price often forms bottoms and peaks at one of these levels, knowing what requires more than just noticing a pause in price action at that level.
In this way, WD Gann also expressed how these percentage calculations can be applied to TIME. For example, if the range from 100 to 200 took 28 days, this gives a range in TIME.
With your time range best divided into quarters (25, 50, 75, 100) and third (33.33, 66.66) and the result added to the last day of that range, you get points in time where you would like to see if the price is also at one of the support or resistance levels you calculated from the price.
This is just one of the many valuable methods taught by WD Gann that every technical trader should know and apply in practice.