W.D. Gann’s Secret Divergence Method: A Comprehensive Analysis
Introduction to W.D. Gann’s Market Philosophy
W.D. Gann, one of the most influential traders in financial market history, developed the Secret Divergence Method as a powerful technique for predicting market reversals. In his seminal work “Truth Of The Stock Tape,” Gann revealed his belief that financial markets operate according to natural laws that can be systematically studied and applied for trading success. This methodology has since become a cornerstone technique for serious technical analysts and traders seeking to anticipate significant market movements before they occur.
Who Was W.D. Gann and Why His Methods Matter
Gann’s Background and Trading Philosophy
W.D. Gann (1878-1955) began his career as a broker in the early 1900s, eventually becoming one of the most successful traders of his time. What distinguished Gann was his multidisciplinary approach to market analysis, combining mathematics, geometry, astronomy, and ancient philosophy to decode market behavior. In works like “Truth of the Stock Tape” (1923), Gann revealed his conviction that markets move according to natural laws that can be identified and leveraged for predictive analysis.
Gann believed that “nothing in this world occurs by chance,” including market movements. His trading philosophy centered on the interconnection between price, time, and pattern—viewing markets as reflections of natural cycles rather than random occurrences. This foundational belief informed all his methodologies, including the Secret Divergence Method.
The Historical Impact of Gann’s Trading Techniques
Gann’s techniques revolutionized technical analysis, introducing concepts like the Square of Nine, Cardinal Crosses, and Hexagon Chart—tools that were unprecedented in their mathematical approach to market forecasting. What made Gann’s impact so profound was his documented trading success; records suggest he made over $50 million in his trading career (equivalent to billions in today’s currency).
While many of Gann’s contemporaries focused solely on price action, his introduction of geometric and cyclical analysis brought a new dimension to technical trading that continues to influence modern market analysis platforms and indicators.
Why Gann’s Methods Continue to Influence Modern Trading
Despite being developed almost a century ago, Gann’s methods remain relevant because they address fundamental market truths that transcend time and technological change. The Secret Divergence Method, in particular, addresses an evergreen reality of markets: price movements often contain hidden signals that reveal institutional positioning before major reversals.
Modern traders continue to study Gann because his methods:
- Provide early warning signals for trend changes
- Offer precise entry and exit points based on mathematical relationships
- Identify hidden market forces that conventional analysis often misses
- Establish frameworks for understanding market psychology through pattern recognition
Understanding the Fundamentals of Secret Divergence
What Exactly Is Divergence in Technical Analysis?
Divergence, in its standard form, occurs when price movement contradicts indicator readings. For example, if a stock makes new price highs while its Relative Strength Index (RSI) fails to confirm with corresponding new highs, this suggests weakening momentum despite rising prices—often a precursor to reversal.
Conventional divergence falls into two categories:
- Regular divergence: Signals potential reversals at market extremes
- Hidden divergence: Confirms continuation of the existing trend after pullbacks
These traditional forms of divergence are widely recognized and incorporated in most technical analysis education.
How Gann’s Approach to Divergence Differed from Conventional Methods
Gann’s Secret Divergence Method transcends conventional approaches in several crucial ways:
- Integration of geometric analysis: While conventional divergence relies solely on indicators versus price, Gann incorporated geometric angles and projections that revealed otherwise invisible market structures.
- Time factor significance: Gann’s method uniquely integrates time cycles, recognizing that divergence has varying significance depending on its occurrence within larger time cycles.
- Price relationship precision: Rather than general divergence observations, Gann’s approach measures specific mathematical relationships between price points to qualify divergence significance.
- Multi-dimensional analysis: Gann examined divergence not just between price and indicators, but between different market factors including volume, open interest, and related market sectors.
The “secret” in Gann’s method refers to these hidden mathematical relationships that aren’t immediately apparent without his analytical framework.
The Key Principles Behind Gann’s Secret Divergence Method
Gann’s Secret Divergence Method operates on several core principles:
- The Law of Vibration: Gann believed every market movement creates vibrations that can be measured mathematically. His divergence method identifies disruptions in these vibrational patterns.
- The Law of Proportion: Divergence becomes significant when it occurs at specific proportional relationships to previous price movements (often at 50%, 61.8%, or 100% retracements).
- Angular Analysis: True divergence signals emerge when price approaches critical Gann angles (particularly the 1×1, 1×2, and 2×1 angles).
- Cyclical Confluence: Maximum divergence significance occurs when the divergence coincides with important time cycles Gann identified, particularly his 90-day, 180-day, and 360-day cycles.
- Support/Resistance Verification: Gann’s method requires divergence to appear at mathematically significant support/resistance levels to be considered actionable.
These principles form the foundation upon which traders can build their application of the Secret Divergence Method.
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Understanding the Fundamentals of Gann’s Tape Reading
Gann’s approach emphasized deep market analysis through careful examination of the “tape” – the detailed stock market data and charts that reveal authentic market trends. He maintained that these charts aren’t merely representations but windows into market psychology and behavior patterns. The Secret Divergence Method builds upon this foundation, teaching traders to interpret market data with precision and identify hidden opportunities invisible to the average market participant.
What Is Secret Divergence? Gann’s Revolutionary Concept
Secret divergence, as conceptualized by Gann, serves as a powerful warning signal of imminent trend reversals. This technical phenomenon occurs when there’s a disconnect between price movement and underlying market indicators. Unlike standard divergence patterns, Gann’s Secret Divergence Method delves deeper into market structure analysis, comparing multiple timeframes and indicators to identify true reversal points with remarkable accuracy.
Practical Application of the Secret Divergence Method
Traders applying Gann’s Secret Divergence Method analyze underlying indicators alongside price movements to identify hidden market patterns. The method involves:
- Monitoring key technical indicators relative to price action
- Identifying disconnects between price trends and indicator movements
- Recognizing specific pattern formations that precede major reversals
- Implementing strategic entry and exit points based on divergence signals
Advanced practitioners of this method can anticipate market turns with significant precision, often positioning themselves ahead of major market moves.
The Scientific Basis of Gann’s Trading Approach
Gann’s approach to secret divergence stemmed from his conviction that markets follow predictable natural laws and patterns. His method wasn’t based on arbitrary rules but on systematic observation of market behavior over decades of trading. By harmonizing mathematical principles with market analysis, Gann created a methodology that transcends typical technical analysis, allowing traders to make truly informed decisions based on natural market cycles rather than emotional reactions.
Historical Performance and Modern Applications
While developed nearly a century ago, W.D. Gann’s Secret Divergence Method continues to demonstrate remarkable effectiveness in today’s markets. Modern traders have successfully adapted these principles to contemporary charting software and trading platforms, proving the timeless nature of Gann’s insights. The method has shown particular effectiveness in identifying major turning points across various market instruments, from stocks and commodities to modern financial derivatives.
CONCLUSION
W.D. Gann’s Secret Divergence Method represents one of the most sophisticated approaches to market analysis ever developed. Rooted in natural laws and mathematical precision, this methodology enables traders to identify hidden divergences between price and indicator movements, providing early signals of impending market reversals. By mastering Gann’s principles of tape reading and divergence analysis, traders gain a significant edge in anticipating market movements before they become obvious to the majority. This time-tested approach continues to reward those who invest the necessary time to understand and apply its principles, offering a pathway to consistent trading success in alignment with natural market laws.
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