Lisa, unfortunately an explanation of Dynamic Gann Levels is not simple. One of Gann's most famous quotes is "When time and price coincide, change is imminent". Don Fisher has devised a series of mathematical equations to project price and time, based upon the famous Gann retracement ratios.
I started studying these methods about 2 years ago, but I abandoned them because the market was more conducive to trend-following. However, the discussion on this thread about Andrew's Pitchfork and the fact that the market has been range-bound lately have caused me to pick it up again.
If you are interested in the math, I suggest contacting Don Fisher. DGLs are not some "magic indicator", but rather a tool for mapping where the market might be headed. If the market is moving towards an important support or resistance level, use other methods to determine if a penetration or a bounce is likely. Also, most DGLers trade in futures, including the SP500. I find it useful with the major stock indices (S&P, Dow, XAU, XOI), but less so with individual equities.
The lines represent projections in time and price from key turning points. The white lines are 3/8 projections, magenta 4/8, yellow 5/8, red 6/8 and green 8/8 (the Gann ratios).
Fisher has found that the yellow, or Level 3, lines tend to be very strong and when other lines converge with a Level 3, a bounce off the line is more likely than a penetration of the line. The numbers on the right represent where the lines project into the future. In the examples I posted, I chose one day. The values in Level B and Level C at the bottom of the chart are the turning points used to create the most recent (short-term) projection. Level B, for example, was the high on 1/5/98. Also, on the Dow chart, the magenta line from the 1/5/98 high sloping down and to the right is known as a Level 2 channel. It is a line parallel to the Level 2 line from the 1/5 high, which is not shown (it was already penetrated). This, I think, is very similar to one of the outside tines of Andrew's Pitchfork.
So 7784 represents Level 2 overhead resistance today, January 14. Normally, with the market this oversold short-term, I would expect it to be taken out. But the last two comparable short-term oversold readings (I use ARMS and TICK) resulted in very feeble rallies. I line up with GROUND ZERO on this one: I think it's an excellent place to sell this market. The SP500 has made a triple top, but each of the subsequent tops has shown weaker readings in other indicators (breadth, leadership, and possibly volume). Until there is a change in the internals, I will assume that the path of least resistance is down.
Pete |
