Gann Swing Chart

Introduction

One of Gann's most practical tools is the Overnight Chart, known today as the Gann Swing Chart or trend indicator chart. Gann called it a purely mechanical method: you do not use judgement, you simply follow the chart and act when it changes direction.

How to Make a Gann Swing Chart

The swing chart is drawn from the daily high-low chart using these simple rules:

• As long as the stock makes higher bottoms each day, move the swing line up to each day's high.
• The first day the stock makes a lower bottom than the previous day, move the swing line down to that day's low.
• As long as the stock keeps making lower bottoms, keep moving the line down.
• When it makes a higher bottom again, move the line back up to that day's high.
• If a day makes both a higher top and a lower bottom (an outside day), first move the line to the high, then down to the low.

The result is a clean line connecting swing tops and swing bottoms, removing daily noise.

Reading the Swing Chart

• Uptrend: swing tops and swing bottoms are both getting higher.
• Downtrend: swing tops and bottoms are both getting lower.
• Trend change up: the swing line crosses above the last swing top.
• Trend change down: the swing line breaks below the last swing bottom.

Example with Bank Nifty (Illustrative)

• Day 1 to Day 4: Bank Nifty makes higher lows. Swing line rises to 52,400.
• Day 5: low is below Day 4's low. Swing line drops to 51,900. Swing top = 52,400.
• Day 6 and 7: lower lows. Swing line drops to 51,500. Swing bottom forms.
• Day 8: higher low. Swing line moves up to 51,950.
• Day 10: price crosses 52,400, the last swing top. According to the swing chart, the trend has turned up.

Gann's Halfway Point with the Swing Chart

Gann combined the swing chart with the halfway point of the last move. Take the extreme low and extreme high of the last swing and divide by two. This is the centre of gravity. Gann would buy or sell near this point with a tight stop-loss.

Example: Last swing low 51,500, high 53,500. Halfway = 52,500. If Bank Nifty reacts to 52,500 and holds, it is a buying area with a stop just below.

Stop-Loss on the Swing Chart

Gann placed stop-loss orders just below the last swing bottom when buying, or just above the last swing top when selling.

Two-Day and Three-Day Swing Charts

Many traders also use a 2-day or 3-day swing chart, where the line changes direction only after 2 or 3 days of higher or lower bottoms. This reduces false signals in choppy markets.

Draw It with GoPocket

Open the daily chart of Nifty or a stock on the GoPocket app. For the last 30 days, write each day's high and low in a notebook and draw the swing line by hand. After a few weeks of practice, you will be able to see swing tops and bottoms instantly on any chart.

Frequently Asked Questions

Is the swing chart good for beginners?

Yes. It is simple, mechanical and removes emotion from trend reading.

Which timeframe works best?

The daily swing chart for swing trading; the weekly swing chart for the bigger trend.

Key Takeaways

• The swing chart follows higher and lower bottoms.
• A break of the last swing top or bottom signals a trend change.
• Combine it with the halfway point and stop-loss.

Disclaimer: Illustrative figures for learning only.