Gann Swings: Classification and Application in Trading

William Delbert Gann, a renowned trader, is one of the pioneers of trading strategies based on technical analysis. Born in Texas in 1878, he became a legend for his ability to predict market trend changes and successfully apply them in practice.

His methods of analyzing price movements might seem complex and, at first glance, can confuse many traders. However, upon closer examination, they provide the keys to accurately interpreting support and resistance levels and predicting trend reversals with impressive precision.

Gann managed to turn $100 into more than $33,000, which would be worth billions today! Gann’s trading strategies, such as Gann Swings, remain relevant even today. These strategies are based on in-depth research into market cycles and the use of trendlines for analysis.

Many traders wonder how he achieved such success. Naturally, Gann’s accomplishments inspire, and the desire to replicate them is understandable. However, his methods require careful study, as the technical analysis tools he developed are not always easy to grasp quickly.

To properly apply Gann Swings in trading, one must consider his approach to market forecasting. Utilizing this knowledge takes time, patience, and experience. Even seasoned traders often find it challenging to comprehend all aspects of his techniques, but applying them in practice can significantly improve your results on the financial markets.

Gann Swing Classification: Distinguishing One-Bar, Two-Bar, and Three-Bar Swings for Reversal Analysis

Gann Swings are crucial candlestick patterns formed at the boundaries of trend changes. They are widely used in market reversal analysis and represent a significant part of swing trading methods. In one of my previous articles, I discussed how swings help identify price reversal points (article on Fibonacci levels).

W.D. Gann proposed three types of swings for trend reversal analysis:

• One-Bar Swings
• Two-Bar Swings
• Three-Bar Swings

Each swing type differs in the number of candles used to update the highs or lows to determine price direction.

One-Bar Gann Swings: A Simple Solution for Market Reversal Analysis

One-Bar Gann Swings are used for short-term trend reversal analysis. The concept is relatively simple:

• If the current bar has higher highs and higher lows than the previous bar in an uptrend, it is an upper one-bar swing.
• If the current bar’s highs and lows are lower than the previous bar’s in a downtrend, it is a lower one-bar swing.

To visualize these swings, we need a price chart (such as bars, which can be equivalent to Japanese candlesticks):

Visualizing One-Bar Gann Swings on the Chart

Let’s color-code the chart to make it easier to spot Gann Swings and track trend reversals:

• Green bars — update upper highs and lows.
• Red bars — update lower highs and lows.
• Black bars — inside bars (not counted).
• Blue bars — outside bars.

We are interested in the bars with extreme high and low values before the trend reversal. Let’s mark these bars on the chart:

Interpreting Gann Swings on the "Manhattan" Chart

Swings appear in succession — one from above, the next from below, and so on. Connecting these points creates a swing line:

For easier visualization, use the Manhattan Chart, which shows only price changes, without any time intervals. This method helps filter out market noise and focus on key trend reversals:

Two-Bar Gann Swings: Identifying Strong Price Movements and Filtering Market Noise

Two-Bar Gann Swings are a powerful tool for analyzing significant price movements and identifying key trend reversals. Unlike one-bar swings, two-bar swings require at least two consecutive bars updating the highs or lows, which helps better filter market noise and focus on more substantial market movements.

Trend Forecasting with Two-Bar Swings

When looking for two-bar swings, it’s essential to consider only the bars that update key highs or lows. Inside bars, which show no change, are excluded from swing identification. Outside bars should be higher or lower than the previous bar to indicate the start of a new movement:

Color-Coded Gann Swing Chart

The chart above uses the same color scheme as for one-bar swings but with the addition of more technical indicators:

• Green bars — indicate rising highs and lows, suggesting a strong upward movement.
• Red bars — show decreasing highs and lows, signaling a downward movement.
• Blue bars — outside bars confirm the beginning of a new trend.
• Black bars — inside bars are ignored when identifying two-bar swings because they don’t update price levels.

Let’s look at the price chart to find where the two-bar Gann swings occur:

How to Identify Two-Bar Swings

A two-bar swing begins when two consecutive bars update the highs or lows either upward or downward. On the chart above, the start of these swings is marked with the numbers "1" and "2" — four upper swings and three lower ones, with the fourth lower swing forming at the end of the chart.

Identifying Pullbacks and Trend Continuations

The number "1" (without "2") indicates small pullbacks against the main trend. This is important because two-bar swings help pinpoint moments when the market corrects itself before continuing the trend. These swings ignore market noise and focus on strong movements, unlike one-bar swings:

Comparison of Two-Bar and One-Bar Swings

When comparing the two-bar swing chart to the one-bar swing chart, you’ll notice that two-bar swings are more effective at filtering market noise and better represent strong price movements. They capture only those price actions that significantly impact the market.

Technical Analysis with Inside and Outside Bars

As for inside bars, you can consider either one candle to the left or multiple candles formed within the range of the mother candle. This approach slightly alters the type of swing but helps better understand market structure:

Three-Bar Gann Swings: A Powerful Tool for Filtering Market Noise and Forecasting Trends

Three-Bar Gann Swings are formed when three consecutive candles update highs and lows. This swing trading method allows traders to effectively filter out market noise and highlight significant market moves. Three-bar swings are widely used to forecast market trends, especially in dynamic markets where identifying trend reversals early is crucial.

Forming Three-Bar Swings and Excluding Inside Bars

To form three-bar swings, three consecutive candles must update the highs or lows. Inside bars are excluded from the calculation because they don’t provide critical trend signals:

The Role of Outside Bars in Reversal Forecasting

Outside bars play a critical role as they update both highs and lows, allowing for more precise trend identification. A swing can even start with an inside bar that updates key levels and continues the downtrend or uptrend:

Visualizing Three-Bar Swings on the "Manhattan" Chart

Once swings are identified, we can visualize them on a chart to gain a clearer understanding of the current market trends. By connecting key points, we create the Manhattan Chart, which shows the main price changes, helping to filter out market noise and focus on significant movements:

Analyzing Uptrends and Downtrends Using Gann Swings

On the chart above, you can see that price highs and lows are steadily rising, indicating an ongoing uptrend. This trend may be accompanied by pullbacks against the trend, which the swings help clearly identify. However, after reaching the second peak, the price starts to decline, signaling a shift to a downtrend:

By using three-bar Gann Swings, you can not only identify strong price movements but also filter out false signals, avoiding mistakes caused by market noise. This method helps traders better understand market structure and make more informed decisions based on technical analysis.

How to Use Three-Bar Gann Swings in Trading: A Practical Guide to Technical Analysis

Three-bar Gann Swings and the Manhattan Chart are powerful tools that simplify the understanding of market structure. They help traders identify key support and resistance levels and analyze trend movements. These tools allow traders to eliminate unnecessary information and focus on critical market moves:

Using Swings to Identify Support and Resistance Zones

Gann Swings allow traders to precisely identify support and resistance zones, which are essential for accurately predicting trends. These zones are key to understanding where prices might stall or change direction:

Head and Shoulders Pattern Using Swings

On the swing chart, you can also easily spot the Head and Shoulders reversal pattern, a crucial element of technical analysis. This pattern indicates a potential trend reversal, and Gann Swings help clearly visualize all the essential parts of the pattern:

• Left Shoulder
• Head
• Right Shoulder

Although the pattern may not be symmetrical, it doesn’t affect its effectiveness. Swings help traders accurately identify the start of a new strong trend after the pattern forms. This pattern is just one example of how Gann Swings can be used for trend analysis and market movement forecasting.

Other Analysis Methods Using Swings

If you haven’t mastered all technical analysis patterns yet, you can use other methods, such as drawing triangles on the chart and analyzing their direction. Gann Swings are perfect for this type of analysis and help highlight key market movements more clearly:

As you can see, three-bar swings can tell you a lot about market structure and price movements. These tools are particularly helpful for those involved in trend analysis because they allow you to forecast reversals and significant price movements with high accuracy. Use them to enhance your trading strategies and make more informed market decisions.

Gann Swings: Final Thoughts and Their Practical Application in Trading

I hope this article has helped you better understand how to use Gann Swings in trading. This system is based on swing trading without indicators and is perfect for those who apply Price Action in binary options or technical analysis patterns. With this system, you can accurately determine support and resistance levels and trend movements in the market.

How to Apply Gann Swings in Binary Options

The application of Gann Swings in binary options trading helps traders find key levels and reversal patterns. This is a powerful tool for trend forecasting and identifying the best points to open trades. By determining the main support and resistance levels, you can easily follow the trend and find ideal entry points into the market.

Do You Need Gann Swings?

Using Gann Swings in trading is more of a necessity than an option. The Manhattan Chart used for swing visualization is simple and easy to understand, even for beginners. Moreover, there are plenty of indicators that automate the process of identifying swings, allowing the trader to focus on analyzing the results and identifying trends.

In conclusion, Gann Swings are an excellent addition to any binary options trading strategy, especially if you use Price Action or technical analysis patterns. This technique helps filter market noise and focus on strong price movements, making it an indispensable part of successful trading in financial markets.