Of all the techniques used in technical analysis, the use and knowledge of dominant time cycles is one of the only methods that allows you to project and anticipate a point in the future, where the market you are studying is likely to change trend. This is possible because price action unfolds in repetitive rhythms over time. W.D Gann used his knowledge of time cycles to make many incredibly accurate market forecasts in both price and time.
Gann believed that “Time is the most important factor in determining market movements” because everything moves in cycles, as the result of the natural law of action and reaction. “By a study of the past, I have discovered what cycles repeat in the future”. Because a cycle literally refers to a circle, Gann knew that the harmonic divisions of the circle would be accurate forecasting tools. This is applicable to all time frames, hours, days, weeks, months, years, etc. Therefore, the important natural cycles are 15, 22½, 30, 45, 60, 67½, 90, 112½, 120, 135, 150, 157½, 180, 202½, 210, 225, 240, 247½, 270, 292½, 300, 315, 330, 337½ and 360.
The chart below shows a simple 60 day cycle in the Stock Market. If we utilize another forecasting technique called a mirror image foldback, we can make an interesting projection or forecast. Basically, the technique assumes that the market under study has found a balance point and is now going to fold backwards over the same human emotional energy that it has just crossed, only this time in reverse. Because we are using a static 60-day cycle, the foldback forecast would only be good for 120 days (2 x 60). The charts below, illustrate the method.
- Everything Comes Full Circle, Cycles of Price & Time By Daniel T. Ferrera