# Mystery of W.D. Gann Square of Nine Explained 5.1 – Squaring Price with Price

## Squaring Price with Price

The technique for squaring price with price is the same technique that we used to calculate the horizontal gridlines for the Square of Nine Roadmap Charts. By adding or subtracting specific divisions of the circle (review the Degrees to Factor Table) to the square root of the base price and then squaring the resulting sum or difference, we are, in effect, calculating support and resistance levels straight up or straight down from the base price without regard to time.

## Support and Resistance from Major Pivots

Generally, you want to do these static angle calculations from only the major pivot points. We would include in this category the all-time high and low, the 10-year high and low, the 5-year high and low, the 52-week high and low, and also the contract high and low for most futures contracts.

For thoroughness, you should do each of these calculations twice, one time with the extreme high or low price for the bars that began and ended the swing, and one time with the highest or lowest closing prices that began and ended the swing. As you can see, if you start to get even a tiny bit more liberal with your definition of what constitutes a major pivot point, you are going to end up with an awful lot of numbers.

If you deal only with stock and stock related tickers, we also suggest using an angle no lower than 180 degrees (a factor of 1) in your calculations if you intend to place all these numbers on a chart. If you intend to keep them in an Excel spreadsheet or otherwise off the chart, then go with 90 degrees for the financial markets and perhaps even 45 degrees if you are looking for additional evidence at a suspected major turning point.

A circle has 360 degrees, and not all angles are of equal importance when doing Square of Nine calculations. Financial markets tend to respond to the 45-degree angle and to the multiples of 90 degrees (180, 270, 360) for major support and resistance. With all markets, 360 degrees (a factor of 2) represents a full cycle, and the location of the 360-degree price angles from the major pivots is always of interest when doing these static angle calculations.

Bond traders tell us that 60 degrees and the multiples of 60 degrees (120, 180, 240, 300, 360) can sometimes be as important in their market as the 90-degree multiples. We do not trade any markets associated with anything that can be sliced, diced, or stewed and can offer no opinion on whether angles other than the usual 90-degree multiples are considered important for those markets.

## Too Much Data Can Mask the Information

There is a danger here of having so much data that there is no discernible information, so you want to be judicious in your squaring price selections. Also, we mostly use these static angle calculations from the major pivot points to provide additional evidence at a suspected major turning point. If our daily Roadmap chart were coming up to a 360-degree price level, we would want to know if this same price level was, as an example, also 10 rotations of 360 degrees down from the all time high.

## The Three Digit Controversy, Again

The three-digit controversy raises its ugly head here, too, as it does with all Square of Nine calculations. We mostly deal with the cash and futures stock indexes and convert them to three significant digits before doing the math for these static angle calculations.  We also convert actual squaring operations whenever a price range is called for if the index price is “much” over 1,000 or less than 100.

Because you do not have to deal with a time element for static angle calculations, you would also probably want to have an off-chart table of natural, unconverted prices handy even if you have marked your chart with major support and resistance levels after doing the appropriate conversion to and from three digits.

Many stocks and indexes made all-time highs in 1999 and 2000 and bear market lows in 2002, so there are dozens of recent examples where the value of this simple price-on-price calculation can be backtested to your own satisfaction. The technique is simple enough to apply without additional demonstration, and it would be spiking the punch to show the most dramatic examples.

## A Touch of Reality, Please

Many high-flying stocks made bear market lows in the Summer and Fall months of 2002. In many cases, these lows were 80% and 90% off all-time highs made a scant two years or so earlier. During the many discussions going on at the time about methods for finding a bottom in stocks, this simple technique was brought up. Examples were cited where AOL, for example, was thought to have probably made a bear market low at the time, very near the 21st 180-degree cycle down from its all-time closing high of 94 (split-adjusted).

On July 25, 2002, AOL made a daily and bear market low of 8.70 and closed that day at 9.64. If you do the math, the 21st 180-degree cycle down from the three-digit adjusted closing high is 9.33. Should the technique be dismissed out of hand because 9.33 was not exactly the low or the 9.64 close of the day that AOL made a bear market low?

## How Close is Close Enough?

We bring this up because since we’re doing mathematical applications the expectation creeps in that the results must be accurate to within two decimal places to be useful. We hope the readers are less rigid. Gann himself did not expect this kind of accuracy and attributed near misses to “lost motion” or “pitch ahead or behind price.”

For any Square of Nine price application, we apply the notion that any bar containing the target price is a valid hit. A near miss of one or sometimes even two bars is a valid hit for time applications. For price and time, squaring applications within two or three degrees is certainly a hit, and within four or five degrees is a near-miss worth considering.

Let’s review the math to see how we got from a closing high of 94 to a “price of interest” of 9.33. We converted 94 to three digits (94 x 10) = 940 because in July, 2002 AOL was trading in single digits. Higher raw numbers produce smaller price slices. The square root of 940 = 30.66.

The factor for 180 degrees = 1. The square of 30.66 – 21 = 93.3, which is converted back from three digits (93.3 x 1/10) = 9.33. How did we know that the 21st cycle of 180 degrees down from the all-time closing high of AOL would be important? We didn’t, at least not until July 25, 2002.

The Square of Nine, on many occasions will show definite predictive qualities, but you usually only learn that after the fact. The success of turning a technique into a method you can trust is not simple, and it’s not easy. We can only propose that success may come to those who seek to harness the power of the Square of Nine not to predict the future but to know when it is here.

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