Shabbir Kayyumi
What is GANN Wheel?
Unlike trading with technical indicators where you can buy or sell when some parameters are met, trading with Gann’s methods is not as straightforward.
Among the many trading methods known to Gann, the square of Nine is quite popular. Squares, circles, and triangles are the three most common geometric shapes that form the basis for most of Gann’s work.
The square of 9 is a spiral of numbers with an initial value “1” starting at the center. Starting from this value, the number increases as we move in a spiral form and clockwise direction. According to experts, each cell in Gann’s square of nine represents a point of vibration.
The Gann Wheel, what most people probably think of as the Square of Nine, which is sometimes also called as "Square Root Calculator" or a device that ‘Squares the Circle’.
You probably recognize that the illustration is just the first few rings of a Gann Wheel with the numeral "1" at the center. In Square of Nine phrasing we say, 19 is 90 degrees from 15. That makes sense only if you can visualise that this rectangular table of numbers is enclosed in a circle of 360 degrees.
In this case, the number 19 is 1/4 the way around the circle from the number 15, or 90 degrees in circumference from 15. The number 34 is directly above the number 15 and positioned one circumference or one ring outside the circle that contains the number 15.
In the same sense that we can say that 19 is 90 degrees from 15, we can say that 34 is 360 degrees from 15, or one complete rotation of the circle from 15. That explains where squaring the circle comes from. A more accurate expression would be that we're circling the square.
Why buy Bank of Baroda stock?
Gann’s wheels and Squares are some of the most common applications and form the cornerstone of Gann’s work. Some traders have been using some variation of the Gann Wheel for about 100 years now. In his interview given to Richard D. Wyckoff in 1909, W.D. Gann attributed market movements to some undefined "law of vibration."
Buy signal:
Gann emphasizes on natural squares acting as a support and resistance in stock prices. In case of Bank of Baroda surprisingly recent swing low is 36 which is exact square of 6 and thereafter it is trading higher by taking support. Not only it has taken support but also it is trading above 49 levels which is (6+1) square as its current market price is 50. Understanding above rationale we can make a buying decision in the stock for higher levels.
Profit booking:
One of the method of Gann suggests ‘even to even’ cycle of the stock and as per this method, stock has made a bottom of Rs 36 which is square of 6; hence immediate cycle on upside can go (6+2) square which comes to Rs 64. So one can consider profit booking near Rs 64 levels.
Stop Loss:
Gann gave importance to crucial ratio of 5/8 or 62.5 in all of his trading methods. Keeping it mind we have calculated 5/8 levels of entire rise, which comes to 40.60. Entire bullish view negates on a breach of 5/8 levels and in case of Bank of Baroda, we will consider Rs 40.60 as a stop loss level.
Conclusion:
We recommend buying Bank of Baroda around Rs 49 with a stop loss of Rs 40.60 for higher targets of Rs 64 as indicated in above chart.
The Author is Head of Technical Research at Narnolia Financial Advisors.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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