Gann Exception Rule

Last modified 15:37, 2 Nov 2012

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Gann's Exception Rule

Many of the charting tools, including Drawing Tools, Hi-Lites, Indicators, and other features using Swing Chart functionality, allow users toggle on or off Gann's Exception Rule.

The rule only applies to multi-interval swing charts, for example 3-day swing charts.

The rule is an exception to the general principles of multi-interval swing chart construction.

In effect, the rule over-rides the requirement that changes in trend direction be confirmed for the entire duration of the interval multiple (for example, a down-trend will swing upward after 3 consecutive higher highs in a 3-day swing chart).

The exception applies to large single interval (or inter-multiple) movements. The magnitude required is for the high or low of the exception interval to exceed the swing-top or swing-bottom level of the previous swing.

Example Swing Overlay on Bar Chart

In the following 3-day swing overlay (orange line), the Gann Exception is not applied:

The large gap down in the center of the bar chart is disregarded because it does not meet the swing chart construction rule that 3 consecutive lower lows are required before the swing upward can be reversed. In this case there was only one lower low, albeit a very substantial one.

Applying the Gann Exception Rule results in the change in direction being recognized and the swing being plotted.

To apply the Gann Exception, go to the Swing Overlay Properties box and select the Gann's Exception Rule check-box:

In the case of our example, the exception will cause the swing chart to be re-plotted:

One purpose of Swing Charts is to remove the "noise" from charts and display the "real" direction of the price trend.

Multi-interval swing charts extend this principle, but may ignore important signals. Applying the Gann Exception puts some of this omitted data back into the display, but whether or not the long-term trend indication is affected depends on each individual situation.

Example Swing Chart

While the effect on an overlaid swing chart is relatively obvious, applying Gann's Exception to a swing chart will result in the recalculation and perhaps an entirely new display. The inclusion of extra swings may dramatically change the swing chart display.

The following example shows the swing chart for the same time-frame of the above example security with the Gann Exception Rule not applied (left) and the result when it is applied (right):

Exception off

Exception applied

 

Note that all the swings in the original 3-day chart (left) are included in the Gann Exception Rule chart (right), along with the extra swings identified and included by the rule.

Again, even though the extra information is displayed when the Gann Exception is applied, whether the overall trend direction is affected may not necessarily be the case. However, even these intra-trend price movements may provide trading opportunities that would be missed if the Gann Exception Rule is not applied.

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