Hello all, today I would like to demonstrate a theory that was hypothesized by one of the greatest traders to ever live, W.D. Gann. This theory is called "The Seven Zones of Activity" in each stage Gann explains what he is looking for, and how the market reacts. Gann describes his "Normal Zone" as a line, that, when price is near that line, it sees little fluctuation, as it is at equilibrium. He explains that very long periods of distribution or accumulation can occur when price is at this "line". For my choice, i decided to use the 20 Week MA. As price saw an extended period of accumulation during the 2017 bull run, and an extended period of distribution during the 2018 Bear Market, both along the 20 Week MA. Therefore, my theory is that we could validly argue this line is now our "Equilibrium". Going forward, we have 3 zones above the line, with the highest zone being distribution. As well as 3 (theoretical) zones below the line, with the lowest being Accumulation. There are no rules as to how long each zone may take, or if they must be equal to each other, so this chart is based off the theory that the 200 Week MA is our "Bottom", similar to the previous bull-run. Feel free to implement this theory into your own analysis, with your own "Bottom", as the next two zones are purely speculation as to the price ranges they will have, and the length of time they will extend. If nothing else, I leave you with this quote; "Remember, it is always darkest just before dawn, and it is always brightest at noontime, just before the sun begins to recede." - W.D. Gann
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Comment:
According to this theory, I would say we are currently in zone 2, and on the verge of entering zone 3 of below normal. I have many theories and don't follow this specific one exactly, but it's always good to formulate backup plans. :)