CIT Angles

Angles and their application to trading are usually associated with the legendary W.D. Gann who first wrote about them some 70+ years ago.

The CIT Angles are inspired by his pioneering work and strive to automate and perfect this tool for the use of the 21st century trader.

Here's what W.D. Gann had to say about them: "After 35 years of research, tests and practical applications, I have perfected and proved the most important angles to be used in determining the trend of the stock market. Therefore, concentrate on those angles until you thoroughly understand them. Study and experiment with each rule I give you, and you will make a success... When once you have thoroughly mastered the Geometrical Angles, you will be able to solve any problem and determine the trend of any stock."

So which are the most important angles, you ask ?

According to Gann, "the first and always most important angle to draw is a 45-degree angle or a moving-average that moves up one point per day, one point per week or one point per month. This is a 45° angle because it divides the Space and Time Periods into two equal parts. As long as the market or a stock stays above the 45° angle, it is in a strong position and indicates higher prices. If this angle is broken by one point, you will usually find that the trend has changed at least temporarily and the stock will go lower.

For example: on March 9, 1932 the Dow Jones Industrial Average made last top at 90, from which a decline followed, with very small rallies, reaching bottom at 41 on July 8, 1932. Note on the weekly chart that the angle of 2 x 1 from the top at 90 crossed at 50 in the week ending July 30, 1932 and after they crossed this level they never declined to 50 again, and advanced to 81 in September, 1932.”

This example, however, raises an interesting question: should we always use one point per day, or should we instead use one unit of price for one unit of time. If we use one point per day with the current DJIA trading around 18,000, the line will look almost horizontal.

One obvious solution to this problem is to implement some form of scaling. But this immediately raises the question of what scale should be used. In addition, if we compare different stocks trading in a similar price range, we most likely will find that different angles better suit their personalities e.g. JNJ and RNR, or IYK and IWD. You get the point.

In other words, neither of the approaches mentioned above provides us with a universal method applicable to any financial instrument in any time frame. Rather, the evidence seems to indicate that individual financial instruments do indeed have a specific “rate of vibration” that fits their characteristics and price behavior, which is neither 1 point per day, nor some arbitrary number derived from an arbitrary price level or scale.

To solve this problem CIT Angles automatically select the correct angle rise (step, rate of vibration) for the specific instrument being analyzed for the chosen time frame, and display that angle from swing highs or lows. Among the other indicators in the bundle, they most likely will be the first to signal a CIT.

W.D. Gann suggests waiting three trading days for valid angle confirmation. Since in these days of HFT trading and flash crashes three days could be an eternity, we prefer to draw the angles from shorter swing lows or highs, and then let users, at their own discretion, decide whether to wait for a CIT Pivot or CIT Signal to confirm that a CIT has taken place, or to take action immediately. While, usually, it is more prudent to wait for such a confirmation, there are instances, such as extreme Tick, Vix or Trin readings, which may justify immediate action. In trending markets, this approach allows for displaying counter trend angles along with the angle supporting the main trend.

The default setting is the 8th harmonic, but users have the ability to experiment with other harmonic angles as well. This can be done from the Format box:

For trading purposes, the angles on the weekly and monthly charts (higher time frames) should be considered first, because they will show the main trend more clearly. The daily trend (lower time frame trend) can change more often, but this recent August '15 SP500 example shows how timely the 1 x 1 daily angles caught the initial 200+ point decline and the subsequent 100+ point rally:

When deciding on which harmonics to use, it is a good idea to keep an eye on the other indicators in the CIT Toolbox. For example, in case of a prolonged up/downtrend, when the duration of the current swing exceeds the average trend duration (as measured by the CIT SwingT indicator), check the CIT Angles, and make adjustments in case they lag price too much.